Abstract
We develop an equilibrium model of labour force participation to examine the labour market business cycle. The model remains agnostic about unemployment inflows and outflows, modelling these flows with a structural moving average representation derived from a factor-augmented vector autoregression model. Estimating the augmented dynamic stochastic general equilibrium model on data for the USA, we identify the structural shocks and parameters driving business cycle fluctuations, avoiding mis specified job-finding and job-separation rates. Our results show that real wage rigidities play a minor role, labour force participation is mildly procyclical, and transitions between employment, unemployment and non-participation are strongly cyclical
| Original language | English |
|---|---|
| Journal | Economica |
| Early online date | 13 May 2025 |
| DOIs | |
| Publication status | E-pub ahead of print - 13 May 2025 |
Acknowledgements
We thank the Editor Wouter den Haan and three anonymous reviewers for comments that helped us to improve the paper substantially. We are also grateful to Martin Ellison, Renato Faccini, Carlos Garriga, Pedro Gomes, Christian Haefke, Chris Martin, Franck Portier, Juan Rubio-Ramirez, Mike Wickens, Francesco Zanetti, and seminar participants at the Bank of England, Birkbeck, the Bank of Greece, the Federal Reserve Bank of St Louis, the Institute for Advanced Studies in Vienna, the University of Bath, the University of Durham, the University of Oxford, the University of St Andrews, the University of Sheffield, and the University of York for helpful comments.Keywords
- business cycles
- labour force participation
- unemployment
ASJC Scopus subject areas
- Economics and Econometrics
Access to Document
- Equilibrium labor force participation and the business cycle
This is the peer reviewed version of the following article: Kokonas, N. and Santos Monteiro, P. (2025). Equilibrium labour force participation and the business cycle. Economica, 1-40 which has been published in final form at https://doi.org/10.1111/ecca.12582. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.