Working Paper: CEPR ID: DP6409
Authors: Morten O. Ravn; Saverio Simonelli
Abstract: We use a 12-dimensional VAR to examine the dynamic effects on the labour market of four structural technology and policy shocks. For each shock, we examine the dynamic effects on the labour market, the importance of the shock for labour market volatility, and the comovement between labour market variables and other key aggregate variables in response to the shock. We document that labour market indicators display "hump-shaped" responses to the identified shocks. Technology shocks and monetary policy shocks are important for labour market volatility but the ranking of their importance is sensitive to the VAR specification. The conditional correlations at business cycle frequencies are similar in response to the four shocks apart from the correlations between hours worked, labour productivity and real wages. To account for the unconditional correlations between these variables, a mixture of shocks are required.
Keywords: Beveridge Curve; Dunlop-Tarshis Observation; Labour Market Dynamics; Neutral and Investment Specific Technology Shocks; Structural VAR
JEL Codes: C32; E24; E32; E52; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| positive technology shocks (O49) | hours worked (J22) |
| positive technology shocks (O49) | employment (J68) |
| positive technology shocks (O49) | vacancies (J63) |
| positive technology shocks (O49) | vacancy-unemployment ratio (J69) |
| positive technology shocks (O49) | unemployment (J64) |
| expansionary monetary policy shocks (E39) | hours worked (J22) |
| expansionary monetary policy shocks (E39) | employment (J68) |
| expansionary monetary policy shocks (E39) | vacancies (J63) |
| expansionary monetary policy shocks (E39) | vacancy-unemployment ratio (J69) |
| expansionary monetary policy shocks (E39) | unemployment (J64) |
| government spending shocks (E62) | hours worked (J22) |
| government spending shocks (E62) | employment (J68) |
| government spending shocks (E62) | vacancies (J63) |
| government spending shocks (E62) | vacancy-unemployment ratio (J69) |
| neutral technology shocks (E39) | average hours worked (J22) |
| investment-specific technology shocks (O39) | average hours worked (J22) |
| neutral technology shocks (E39) | output (C67) |
| investment-specific technology shocks (O39) | output (C67) |