Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Supply Shocks, Demand Shocks, and Labor Market Fluctuations Helge Braun1
Reinout De Bock2 1
Riccardo DiCecio3
University of British Columbia 2
Northwestern University 3
FRB of St. Louis
May 2007
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Motivation
What is the impact of demand and supply type shocks on job ‡ows, worker ‡ows, unemployment and vacancies? Which margin of adjustment in the labor market matters? Job …nding/Job creation vs. Separation/Job destruction
What is the e¤ect of technology shocks on hours/employment? In this paper we address these questions using Structural VARs Weak identi…cation restrictions, agnostic on response job and worker ‡ows Job and worker ‡ows together Compare identi…cation schemes based on short-, medium- and long-run restrictions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Outline
Worker and job ‡ows data Structural VAR (SVAR) Estimate reduced form VAR (common across identi…cation schemes) Implement short-run sign restrictions on response of price and output to identify demand and supply shocks
Robustness Medium-run restrictions on the response of labor productivity Long-run restriction on labor productivity and a recursiveness assumption for the monetary policy shock Small VAR
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Worker Flows Data
Job-…nding rate ft : Rate at which unemployed worker enter employment relationships
Separation rate st : Rate at which employed workers enter unemployment
No data on job-to-job transitions! No data on ‡ows into and out of non-participation! Blanchard, and Diamond (1990), "The Cyclical Behavior of the Gross Flows of U.S. Workers", Brooking Papers on Economic Activity Data: Shimer (2005), "Reassessing the Ins and Outs of Unemployment"
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Worker Flows lo g (f )
lo g (f ): BC co mp o n en t
t
-0 .2
t
0 .2
-0 .3 0 .1
-0 .4 -0 .5
0
-0 .6 -0 .7
-0 .1
-0 .8 -0 .9
-0 .2
Q 3 -5 4 Q 4 -6 2 Q 1 -7 1 Q 2 -7 9 Q 3 -8 7 Q 4 -9 5 Q 1 -0 4
Q 3 -5 4 Q 4 -6 2 Q 1 -7 1 Q 2 -7 9 Q 3 -8 7 Q 4 -9 5 Q 1 -0 4
lo g (s )
lo g (s ): BC co mp o n en t
t
-3
t
0 .0 8
-3 .1
0 .0 6
-3 .2
0 .0 4
-3 .3
0 .0 2 0
-3 .4
-0 .0 2
-3 .5
-0 .0 4
-3 .6
-0 .0 6 -0 .0 8
Q 3 -5 4 Q 4 -6 2 Q 1 -7 1 Q 2 -7 9 Q 3 -8 7 Q 4 -9 5 Q 1 -0 4
Q 3 -5 4 Q 4 -6 2 Q 1 -7 1 Q 2 -7 9 Q 3 -8 7 Q 4 -9 5 Q 1 -0 4
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Job Flows Data
Gross Job Creation JCt : Employment gains summed over all plants that expand or start up between t-1 and t (scaled by employment). Gross Job Destruction JDt : Employment losses summed over all plants that contract or shut down between t-1 and t (scaled by employment). Quarterly job ‡ows constructed in: Davis, Haltiwanger, and Schuh (1996), Job Creation and Destruction Davis, Faberman, and Haltiwanger (2005), "The Flows Approach to the Labor Market: New Data Sources, Micro-Macro Links, and the Recent Downturn"
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Job Flows lo g (JC )
lo g (JC ): BC co mp o n en t
t
-2 .6
t
0 .1 5
-2 .7
0 .1
-2 .8
0 .0 5
-2 .9
0
-3
-0 .0 5
-3 .1
-0 .1
-3 .2
-0 .1 5
-3 .3 Q 3 -5 4 Q 4 -6 2 Q 1 -7 1 Q 2 -7 9 Q 3 -8 7 Q 4 -9 5 Q 1 -0 4
Q 3 -5 4 Q 4 -6 2 Q 1 -7 1 Q 2 -7 9 Q 3 -8 7 Q 4 -9 5 Q 1 -0 4
lo g (JD )
lo g (JD ): BC co mp o n en t
t
t
-2 .4 -2 .5 -2 .6
0 .2 0 .1
-2 .7 -2 .8 -2 .9
0 -0 .1
-3 -3 .1 -3 .2 Q 3 -5 4 Q 4 -6 2 Q 1 -7 1 Q 2 -7 9 Q 3 -8 7 Q 4 -9 5 Q 1 -0 4
-0 .2
Q 3 -5 4 Q 4 -6 2 Q 1 -7 1 Q 2 -7 9 Q 3 -8 7 Q 4 -9 5 Q 1 -0 4
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Job Flows
Net employment changes (NET): Di¤erence between employment at time t+1 and t: Et
Et 1 (Et 1 + Et ) /2
JCt
JDt .
Gross job reallocation rt (SUM): The sum of all plant level gains and losses that occur between t+1 and t: rt
JCt + JDt .
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
SVAR Literature Review
Davis and Haltiwanger (1999), "On the Driving Forces behind Cyclical Movements in Employment and Job Reallocation" Hall (2006) and Shimer (2006) study Mortensen-Pissarides with technology shocks Fujita (2004), "Vacancy Persistence" Cabellero and Hammour (2005), "The Cost of Recessions Revisited: A Reverse-Liquidationist View" Lopez-Salido, and Michelacci (2005), "Technology Shocks and Job Flows"
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Variables in VAR Analysis
Zt = [Labor productivity growth, In‡ation, Hours, Job-…nding rate, Separation rate, Job creation, Job destruction, Vacancies, Interest rate]’ Sample: 1954:Q2-2004:Q2
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Structural VAR Analysis Standard reduced form VAR given by: Zt = µ + ∑pj=1 Bj Zt
j
+ ut , Eut ut0 = V .
Reduced form residuals, ut , are related to the structural shocks, et : et = A0 ut ut = C et , and C = A0 1 Structural shocks are orthogonal to each other: E et et0 = I .
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Implementation Sign Restrictions Bayesian procedure Je¤rey’s prior on reduced form OLS estimates parameters Bˆ and Vˆ Posterior distribution of the reduced form VAR coe¢ cients:
(V jZt =1,...,T ) (B jV , Zt =1,..,T )
IW T Vˆ , T ˆ V X 0X N B,
k , 1
A possible orthogonal decomposition of the variance-covariance matrix is: C s.t. V = CC 0 Draw from a uniform prior on rotation matrices such that CQ is also an admissible decomposition Check sign restrictions on IRFs for each structural shock. If we “…nd” all shocks, keep draw. Posterior distribution on IRFs satisfying the restrictions Continue until you have 1000 valid decompositions.
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Demand and Supply Shocks
Variable Output Price level Interest rate
Demand shocks Monetary Other
"1 4 "1 4 #1
"1 4 "1 4 "1
Supply shocks
"1 #1
4 4
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Demand and Supply Shocks
Variable Output Price level Interest rate
Demand shocks Monetary Other
"1 4 "1 4 #1
"1 4 "1 4 "1
Supply shocks
"1 #1
4 4
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Demand and Supply Shocks
Variable Output Price level Interest rate
Demand shocks Monetary Other
"1 4 "1 4 #1
"1 4 "1 4 "1
Supply shocks
"1 #1
4 4
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
π
ln(Y)
ln(1+R)
Robustness
ln(H)
Conclusions
ln(Y/H)
0.6 0.4 Monetary
0.5
0.4
0.4
0.2
0.2
0.6
0.2
0.4
0 0
-0.4 -0.5
0.2
0
0
-0.2
-0.2
-0.6
0
-0.2
-0.2
-0.4
-0.4
0.6 Other demand
0.4 0.5
0.4
0.4
0.2
0.2
0.6 0.4
0.2 0
0
-0.4 -0.5
0.2
0
0
-0.2
-0.2
-0.6
0
-0.2
-0.2
-0.4
-0.4
0.6 0.4
Supply
0.5
0.4
0.2
0.2
0.6 0.4
0.2 0
0
10
20
-0.6
0
-0.2
-0.4 -0.5
0.2
0
0
-0.2
0
0.4
-0.2 0
10
20
-0.2
-0.4 0
10
20
-0.4 0
10
20
0
50
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Summary of Results
Supply side shocks have more persistent e¤ects Hours increase in response to all shocks Productivity increases in response to supply shocks
Robustness
Conclusions
Motivation and Outline
Worker and Job Flows Data
ln(JC)
g
ln(JD)
0
1
-1
0
-2
6
2
4
1
2 0
-3 -1
-2
-4
Other demand
0
1
-2
0
0
1
-1
0
10
20
0
0
10
20
0
0 -5
-2
-10
-3
-15
1
-2
5
-1
2
-3 -4
-15
4 2
-2
0 -1
-10
-3
6 1
2 Supply
0 -2
-4
-2
1
-3 -1
0 -5
2
2
-1
5
-1
4
5
0
0
-1
-5
-2
-10 -15
-3 0
10
20
Conclusions
Cumulative Reallocation
0
6 1 2
Robustness
Reallocation
E,t+1
1
2 Monetary
Structural VAR (SVAR)
0
10
20
0
10
20
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Summary of Results
Supply side shocks have more persistent e¤ects Hours increase in response to all shocks Productivity increases in response to supply shocks Job Flows: * Creation and job destruction respond similar to shocks * Job destruction more important in driving the IRFs of employment growth * Decreased reallocation after demand shocks; unchanged after supply shocks
Motivation and Outline
Worker and Job Flows Data
ln(f)
Structural VAR (SVAR)
u
ln(s)
Robustness
ln(v)
t+1
4
3 2 Monetary
Conclusions
1
0.5
0.1
0
0. 05
-0.5
0
-0.1
-1.5
-2
0
-0. 05
-1
-1
2
0
-2
-0. 15 -4
4
Other demand
3 2 1
0.5
0.1
0
0. 05
0
-0.1
-1.5
-2
0
-0. 05
-1
-1
2
0
-0.5
-2
-0. 15 -4
4
3 2 Supply
1
0.5
0.1
0
0. 05
0
-0.1
-1.5
-2
0
-0. 05
-1
-1
2
0
-0.5
-2
-0. 15 -4
0
10
20
0
10
20
0
10
20
0
10
20
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Summary of Results
Supply side shocks have more persistent e¤ects Hours increase in response to all shocks Productivity increases in response to supply shocks Job Flows: * Creation and job destruction respond similar to shocks * Job destruction more important in driving the IRFs of employment growth * Decreased reallocation after demand shocks; unchanged after supply shocks Worker Flows: *Hump-shaped IRFs of job-…nding rate and vacancies *Job-…nding rate more important in driving the IRFs of unemployment
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Variance Decomposition at Business Cycle Frequency
Price-Output Restriction Monetary Demand Supply Output In‡ation Int. rate Hours
9.3
[3.4,20.6 ]
6.1
[1.7,16.1 ]
6.5
[2.3,14.3 ]
9.3
[2.6,24.1 ]
12.5
[4.3,25.9 ]
12.4
[4.3,29.5 ]
15.5
[4.7,33.6 ]
13.8
[4.0,31.6 ]
9.8
[2.9,23.5 ]
10.3
[3.4,25.2 ]
5.8
[1.6,14.4 ]
9.1
[2.6,23.1 ]
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Variance Decomposition at Business Cycle Frequency
Price-Output Restriction Monetary Demand Supply Output Job Finding Separation JC JD Vacancies APL
9.3
[3.4,20.6 ]
9.5
[2.6,24.3 ]
9.3
[3.6,22.0 ]
7.3
[2.3,18.7 ]
9.5
[2.9,22.8 ]
9.7
[2.3,23.0 ]
7.5
[2.817.0 ]
12.5
[4.3,25.9 ]
12.8
[3.5,31.1 ]
10.9
[3.4,27.6 ]
11.4
[4.4,24.1 ]
13.3
[3.6,28.7 ]
12.5
[3.9,27.4 ]
10.5
[3.6,20.8 ]
9.8
[2.9,23.5 ]
9.2
[2.8,22.5 ]
8.7
[2.7,29.8 ]
6.2
[1.8,15.7 ]
6.3
[1.8,16.3 ]
8.6
[2.3,22.0 ]
8.8
[2.6,21.1 ]
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Matching Function Cobb-Douglass functional form: M (U, V ) | {z } Number of Matches
=
At |{z}
EFFICIENCY
U αu |{z} αu : Elasticity Unemployment
V αv . |{z} αv : Elasticity Vacancies
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Matching Function Cobb-Douglass functional form: M (U, V ) | {z } Number of Matches
=
At |{z}
EFFICIENCY
U αu |{z} αu : Elasticity Unemployment
Relation with Job Finding: ln
M (U, V ) U
= ln ft
V αv . |{z} αv : Elasticity Vacancies
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Matching Function Cobb-Douglass functional form: M (U, V ) | {z } Number of Matches
=
At |{z}
EFFICIENCY
U αu |{z} αu : Elasticity Unemployment
V αv . |{z} αv : Elasticity Vacancies
Relation with Job Finding: ln
M (U, V ) U
= ln ft
NO constant returns to scale: ln ft = ln A + αv ln vt
(1
αu ) ln ut
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Matching Function Cobb-Douglass functional form: M (U, V ) | {z } Number of Matches
=
At |{z}
EFFICIENCY
U αu |{z} αu : Elasticity Unemployment
V αv . |{z} αv : Elasticity Vacancies
Relation with Job Finding: ln
M (U, V ) U
= ln ft
NO constant returns to scale: ln ft = ln A + αv ln vt
(1
αu ) ln ut
Constant returns to scale: ln ft = ln A + α (ln vt
ln ut ) .
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Estimating the Matching Function
Get a posterior distribution for α, αv , αu and A : 1
2
3
Use the vector of accepted residuals and VAR coe¢ cients from Inverted Wishart and Normal to generate arti…cial data Z˜ t ; Construct unemployment using the steady state approximation u˜ t +1 = s˜t / s˜t + f˜t from the arti…cial data; Regress ln f˜t on either ln v˜t and ln u˜ t (not assuming CRS) or ln (v˜t /u˜ t ) (under the CRS assumption).
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Estimates of the Matching Function
CRS Monetary Other Demand Supply All Data
αv 0.39
no CRS
A 3.35
αv 0.27
αu 0.44
[0.38,0.40 ]
[3.30,3.58 ]
[0.24,0.30 ]
[0.42,0.47 ]
0.39
3.33
0.27
0.46
[0.38,0.40 ]
0.41
[0.41,0.42 ]
0.40
[0.40,0.41 ]
0.40
[0.40,0.41 ]
[3.24,3.52 ]
3.69
[3.61,3.86 ]
3.54
[3.49,3.69 ]
3.55
[3.44,3.66 ]
[0.25,0.31 ]
0.27
[0.25,0.31 ]
0.25
[0.25,0.29 ]
0.25
[0.25,0.29 ]
[0.44,0.48 ]
0.43
[0.43,0.44 ]
0.43
[0.43,0.44 ]
0.43
[0.43,0.43 ]
A 0.81
[0.65,1.14 ]
0.92
[0.77,1.29 ]
0.85
[0.72,1.14 ]
0.75
[0.69,1.01 ]
0.74
[0.70,1.02 ]
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Open Issues
Are the supply shocks interpretable as technology? Productivity response positive, but weak
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Open Issues
Are the supply shocks interpretable as technology? Productivity response positive, but weak Restrict the medium-run response of labor productivity
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Open Issues
Are the supply shocks interpretable as technology? Productivity response positive, but weak Restrict the medium-run response of labor productivity
How do identi…ed shocks compare with shocks from point identi…cation schemes?
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Open Issues
Are the supply shocks interpretable as technology? Productivity response positive, but weak Restrict the medium-run response of labor productivity
How do identi…ed shocks compare with shocks from point identi…cation schemes? Restrict labor productivity using a long-run restriction and identify monetary policy shocks via a recursiveness assumption
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Open Issues
Are the supply shocks interpretable as technology? Productivity response positive, but weak Restrict the medium-run response of labor productivity
How do identi…ed shocks compare with shocks from point identi…cation schemes? Restrict labor productivity using a long-run restriction and identify monetary policy shocks via a recursiveness assumption
What happens in a lower dimensional VAR?
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Open Issues
Are the supply shocks interpretable as technology? Productivity response positive, but weak Restrict the medium-run response of labor productivity
How do identi…ed shocks compare with shocks from point identi…cation schemes? Restrict labor productivity using a long-run restriction and identify monetary policy shocks via a recursiveness assumption
What happens in a lower dimensional VAR? Use a lower-dimensional VAR with labor productivity, in‡ation, fed funds rate, and hours
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Medium-Run Restriction
Variable Productivity Output Price level Interest rate
Demand shocks Monetary Other not " 33 80 not " 33 80
"1 4 "1 4 #1
"1 4 "1 4 "1
Supply shocks
" 33
80
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Medium-Run Restriction
Variable Productivity Output Price level Interest rate
Demand shocks Monetary Other not " 33 80 not " 33 80
"1 4 "1 4 #1
"1 4 "1 4 "1
Supply shocks
" 33
80
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Medium-Run Restriction
Variable Productivity Output Price level Interest rate
Demand shocks Monetary Other not " 33 80 not " 33 80
"1 4 "1 4 #1
"1 4 "1 4 "1
Supply shocks
" 33
80
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
π
ln(Y)
ln(1+R)
Robustness
ln(H)
Conclusions
ln(Y/H)
0.6 0.4 Monetary
0.5
0.4
0.4
0.2 0
0
-0.5
0.5
0.2
0.2
0
-0.2
0
-0.4
-0.2
0
-0.2 -0.4
-0.5
-0.6
0.6 Other demand
0.4 0.5
0.4
0.4
0.2
0
-0.5
0.5
0.2
0.2
0
0
-0.2
0
-0.4
-0.2
0
-0.2 -0.4
-0.5
-0.6
0.6 0.4
Supply
0.5
0.4
0
0 0
-0.2 -0.4
-0.5 10
20
-0.6
10
20
0
-0.2
-0.2 0
0.5
0.2
0.2
0
0
0.4
0.2
-0.4 0
10
20
-0.5 0
10
20
0
50
Motivation and Outline
Worker and Job Flows Data
ln(JC)
g
ln(JD)
0 -1
2
0
0
-1
-5
-2
-10
-3
-15
-2
Other demand
10
6
2
2
0
1
2
0
0
-1
-5
-2
-10
-3
-15
0
-2
-1
-2 -4
Supply
10
6
2 2
2
0
1
2
0
0
-1
-5
-2
-10
0
-2
-1
-2
-3
-4 0
10
20
0
10
20
5
4 0
1
5
4 0
1
5
1
2
-4
2
Cumulative Reallocation
4
0
-2
Conclusions
10
0
1
Robustness
Reallocation
E,t+1
6
2 2 Monetary
Structural VAR (SVAR)
0
10
20
-15 0
10
20
0
10
20
Motivation and Outline
Worker and Job Flows Data
ln(f)
u
ln(s)
Robustness
Conclusions
ln(v)
t+1
4
3
1
2 Monetary
Structural VAR (SVAR)
0.1 2
0.5
1
0
0
-0.5
-1
-1
-2
-1.5
0
0
-0.1
-2 -4
4
Other demand
3
1
2
0.1 2
0.5
1
0
0
-0.5
-1
-1
-2
-1.5
0
0
-0.1
-2 -4
4
3
1
Supply
2
0.1 2
0.5
1
0
0
-0.5
-1
-1
0
0
-0.1
-2
-1.5
-2
-4 0
10
20
0
10
20
0
10
20
0
10
20
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Summary of Results
Demand shocks almost identical Sizable fraction of supply shocks reduces employment and hours and increases unemployment Supply shocks have no e¤ect on reallocation or cumulative reallocation
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Variance Decomposition at Business Cycle Frequency
Price-Output Restriction Monetary Demand Supply Output In‡ation Int. rate Hours
9.3
[3.4,20.6 ]
6.1
[1.7,16.1 ]
6.5
[2.3,14.3 ]
9.3
[2.6,24.1 ]
12.5
[4.3,25.9 ]
12.4
[4.3,29.5 ]
15.5
[4.7,33.6 ]
13.8
[4.0,31.6 ]
9.8
[2.9,23.5 ]
10.3
[3.4,25.2 ]
5.8
[1.6,14.4 ]
9.1
[2.6,23.1 ]
Labor Productivity Restriction Monetary Demand Supply
8.8
[3.4,19.6 ]
6.6
[2.0,15.0 ]
6.4
[2.4,13.7 ]
8.8
[2.5,22.2 ]
12.3
[4.7,25.1 ]
13.9
[4.7,28.8 ]
16.0
[6.0,33.9 ]
14.8
[4.8,32.2 ]
7.5
[2.0,19.4 ]
8.8
[2.4,22.4 ]
6.2
[1.8,16.8 ]
7.8
[2.1,20.5 ]
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Variance Decomposition at Business Cycle Frequency
Price-Output Restriction Monetary Demand Supply Output Job Find Separ JC JD Vacan APL
9.3
[3.4,20.6 ]
9.5
[2.6,24.3 ]
9.3
[3.6,22.0 ]
7.3
[2.3,18.7 ]
9.5
[2.9,22.8 ]
9.7
[2.3,23.0 ]
7.5
[2.817.0 ]
12.5
[4.3,25.9 ]
12.8
[3.5,31.1 ]
10.9
[3.4,27.6 ]
11.4
[4.4,24.1 ]
13.3
[3.6,28.7 ]
12.5
[3.9,27.4 ]
10.5
[3.6,20.8 ]
9.8
[2.9,23.5 ]
9.2
[2.8,22.5 ]
8.7
[2.7,29.8 ]
6.2
[1.8,15.7 ]
6.3
[1.8,16.3 ]
8.6
[2.3,22.0 ]
8.8
[2.6,21.1 ]
Labor Productivity Restriction Monetary Demand Supply
8.8
[3.4,19.6 ]
9.5
[3.3,22.8 ]
9.9
[3.7,20.8 ]
7.1
[2.4,19.2 ]
9.3
[3.4,20.8 ]
9.1
[2.7,22.7 ]
7.4
[2.7,16.4 ]
12.3
[4.7,25.1 ]
13.8
[4.2,30.6 ]
11.2
[3.7,27.3 ]
11.6
[4.6,23.5 ]
13.7
[4.1,29.7 ]
13.0
[4.6,28.3 ]
9.9
[4.0,20.8 ]
7.5
[2.0,19.4 ]
8.0
[2.1,20.5 ]
8.1
[2.6,19.4 ]
6.6
[2.1,16.6 ]
7.1
[1.8,16.6 ]
8.0
[2.0,19.7 ]
8.5
[2.7,20.9 ]
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Long-run Restriction and Recursive Monetary Policy Remember the reduced form VAR: Zt = µ + ∑pj=1 Bj Zt
j
+ ut
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Long-run Restriction and Recursive Monetary Policy Remember the reduced form VAR: Zt = µ + ∑pj=1 Bj Zt
j
+ ut
Structural VAR: A0 1 Zt = A0 1 µ + ∑pj=1 Bj Zt
j
+ et
The long-run e¤ects of the structural shocks are given by: Z∞ = Θet , Θ
δ
Aj
1
A0 1 .
The …rst row of matrix Θ: Θ (1, :) = [Θ (1, 1) , 01
9] .
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Long-run Restriction and Recursive Monetary Policy Remember the reduced form VAR: Zt = µ + ∑pj=1 Bj Zt
j
+ ut
Structural VAR: A0 1 Zt = A0 1 µ + ∑pj=1 Bj Zt
j
+ et
The long-run e¤ects of the structural shocks are given by: Z∞ = Θet , Θ
δ
Aj
1
A0 1 .
The …rst row of matrix Θ: Θ (1, :) = [Θ (1, 1) , 01
9] .
Monetary policy shocks as in Christiano, Eichenbaum, Evans (1999) by assuming that the 9th column of A0 : A0 (:, 9) = [01
9 , A0
(9, 9)]0 .
Motivation and Outline
Worker and Job Flows Data
π
ln(Y) 1.2
0.4
1
0.2
ln(1+R)
Robustness
ln(H) 1.2
0.2
1
0.6
0.8
0
0.4
0.6 0.4 0.2
-0.2
-0.2
-0.4
-0.4
0.6 0.4
0.2
0.2 0
0
-0.6
-0.2
-0.6
-0.4
-0.8
1.2
0.4
1
0.2
0.8
1.2
0.2
1
0.6
0.8
0
0.8 Technology
0 -0.2
-0.2
-0.8
-0.4
0
0.4
0.6 0.4 0.2
-0.2
-0.2
-0.4
-0.4
0.6 0.4
0.2
0.2 0
0
-0.6
-0.2
-0.6
0 -0.2
-0.2
-0.8
-0.4 0
10
20
0
10
20
-0.8
Conclusions
ln(Y/H)
0.8
0
0.8 Monetary
Structural VAR (SVAR)
-0.4 0
10
20
0
10
20
0
50
Motivation and Outline
Worker and Job Flows Data
Monetary
ln(f)
Structural VAR (SVAR)
ln(s)
ln(JC)
Robustness
ln(JD)
ln(v) 6
2.5
4
1.5
3
1
2
3
5
1.5
2
4
1
2
0.5
1
1
0
0.5
-0.5
0
0 -1 -2
-1.5
3 2
0
1
-1
0
-1
-2
-1
-1.5
-3
-2
-0.5
-1
Conclusions
-3
1.5
3 Technology
6
2.5
4
1
2
3
5
1.5
2
4
1
2
0.5
1
1
0
0.5
-0.5
0
0 -1 -2
2 0
-1.5
1
-1
0
-1
-2
-1
-1.5
-3
-2
-0.5
-1
3
-3 0
10
20
0
10
20
0
10
20
0
10
20
0
10
20
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Small VAR Procedure
1
Four-variable VAR: Zt = [Labor productivity growth, In‡ation, Hours, Interest rate]’
2
Identify εM , εD , εS
3
Regress: T
zt = a +
j =0
T
T
∑ βMj bεMt j + ∑ βDj bεDt j =0
j
+
∑ βSj bεSt
j =0
j
+ νz ,t
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Small VAR Results
Qualitatively similar conclusions as in large VAR Responses of Job-…nding rate and vacancies to non-monetary demand shock are less persistent Responses of supply shocks are less pronounced
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Demand shocks are as or more important than supply shocks (technology shocks more speci…cally) Using short-run price and output restrictions, supply shocks have qualitatively similar e¤ects to demand shocks. E¤ects are more persistent for supply shocks. When identi…ed via medium-run or long-run restrictions on labor productivity, supply shocks do not have a clear cut e¤ect on the labor market variables. Work in progress disentangles supply, reallocation, Schumpeterian, and embodied shock, ...
Conclusions
Motivation and Outline
Worker and Job Flows Data
Structural VAR (SVAR)
Robustness
Conclusions
Predictions of Mortensen-Pissarides Vacancies
2
U (End)
0 -2 0
1
2
3
4
5
6
0.5 0 -0.5 -1 -1.5
7
8
9
10
Job Destruction Job Creation
0
1
2
3
4
5
6
7
8
0
1
2
3
4
5
6
7
8
9
10
0.8 0.6 0.4 0.2 0
Job Finding 9
10
