Search Frictions and Evolving Labour Market Dynamics

Ellington, Michael ORCID: 0000-0003-0264-7572, Martin, Christopher and Wang, Bingsong (2021) Search Frictions and Evolving Labour Market Dynamics. Journal of Economic Dynamics and Control, 127. p. 104104.

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Official URL: http://dx.doi.org/10.1016/j.jedc.2021.104104

Abstract

This paper puts Search Frictions models under novel empirical scrutiny. To capture changing dynamics, we fit a Bayesian time-varying parameter VAR to US labour market data from 1965–2016. Using a DSGE model with Search Frictions, we identify several structural shocks, including a shock to worker bargaining power that we name a wage shock. We argue that the wage shock is a key driver of cyclical variation, explaining a higher proportion of the variation of these variables than productivity, demand or job separation shocks. We also document stark differences between empirical and theoretical impulse response functions that cast doubt on the core transmission mechanism of search and matching models.

Item Type:	Article
Additional Information:	Source info: Journal of Economic Dynamics and Control, Forthcoming
Uncontrolled Keywords:	time-varying parameter model, real wages, search frictions
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	17 Mar 2021 09:11
Last Modified:	21 Apr 2023 01:30
DOI:	10.1016/j.jedc.2021.104104
Related URLs:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3117522