Asset Prices and Unemployment Fluctuations

Patrick Kehoe, Elena Pastorino, Pierlauro Lopez and Virgiliu Midrigan

No 1119, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: Discount rate variation generated by slow-moving habits and amplified by human capital accumulation accumulation can generate large responses of unemployment to productivity changes. Job creation is a type of investment made by firms, who decide how many resources to invest in recruiting new workers; in their investment choice, firms respond to incentives driven by the cyclical evolution of expected future payoffs from filled vacancies and, most importantly, of the required return for bearing the associated risk. The channel we focus on is parsimonious, as it offers a unified explanation for asset pricing and business-cycle facts, and in particular for a sizable fraction of unemployment fluctuations. The economic forces that account for the ample fluctuations in stock market valuations and risk premia can also drive employers’ decisions to hire and post new vacancies.

Date: 2018
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Asset Prices and Unemployment Fluctuations (2020)
Working Paper: Asset Prices and Unemployment Fluctuations (2020)
Working Paper: Asset Prices and Unemployment Fluctuations (2019)
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