Investment-Specific Shocks and Cyclical Fluctuations in a Frictional Labor Market

José Silva and Manuel Toledo

No 852, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: amplification mechanism in the labor market fluctuations. We first show evidence that suggests that when technological advances make equipment more expensive, not only investment and output decrease but also firms post fewer vacancies, hours worked are reduced and unemployment increases. Moreover, we study the quantitative impact of this type of shocks on the labor market by incorporating them into a Real Business Cycle model with search and matching frictions. We find that in our model these shocks have direct amplification effect on labor market fluctuations, increasing the volatility of the labor market variables between two and five times.

Date: 2010
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Journal Article: Investment-Specific Shocks and Cyclical Fluctuations in a Frictional Labor Market (2010)
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