Factor Complementarity and Labour Market Dynamics
Federico Di Pace and
Stefania Villa ()
No 201411, CDMA Working Paper Series from Centre for Dynamic Macroeconomic Analysis
We propose and estimate a dynamic stochastic general equilibrium model featuring search and matching frictions, deep habits and a CES production function. The model successfully replicates the cyclical properties of labour market variables in the US economy for three main reasons. First, the endogenous mechanisms of the model â€“ factor complementarity, deep habits and unemployment benefits â€“ play a key role for explaining the amplification in unemployment and vacancies. Second, factor-biased productivity innovations are important exogenous sources of labour market dynamics. Third, demand-side innovations induce markup fluctuations consistent with the deep habits mechanism.
Keywords: CES; Deep Habits; Search and Matching; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E24 E25 E32 J64 (search for similar items in EconPapers)
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Journal Article: Factor complementarity and labour market dynamics (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:san:cdmawp:1411
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