Search Frictions and Evolving Labour Market Dynamics

Michael Ellington; Christopher Martin; Bingsong Wang

doi:10.1016/j.jedc.2021.104104

Search Frictions and Evolving Labour Market Dynamics

Michael Ellington, Christopher Martin, Bingsong Wang

Research output: Contribution to journal › Article › peer-review

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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.

Original language	English
Article number	104104
Number of pages	26
Journal	Journal of Economic Dynamics and Control
Volume	127
Early online date	21 Apr 2021
DOIs	https://doi.org/10.1016/j.jedc.2021.104104
Publication status	Published - 30 Jun 2021

Funding

We would like to thank the editor, Thomas Lubik, an anonymous associate editor and two anonymous referees for providing insightful comments that have increased the quality of our work. We also thank Luca Benati, Franceso Zanetti, Haroon Mumtaz, Gary Koop and Marco Fogoni for their comments, discussions, and sharing computer code. Finally, we are grateful to seminar participants at: The University of Bath; Brunel University; Durham University; The University of Strathclyde; the 12th International Conference on Computational and Financial Econometrics held at the University of Pisa in December 2018; and the Spanish Association of International Economics and Finance meeting held in Granada in June 2019.

Funders	Funder number
Brunel University
Spanish Association of International Economics and Finance
University of Strathclyde
Durham University

Keywords

real wages
search frictions
time-varying parameter model

ASJC Scopus subject areas

Control and Optimization
Applied Mathematics
Economics and Econometrics

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.jedc.2021.104104

EMW 2020 Search Frictions Evolving Labour Market DynamicsAccepted author manuscript, 2.49 MBLicence: CC BY-NC-ND

Cite this

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Search Frictions and Evolving Labour Market Dynamics

Abstract

Funding

Keywords

ASJC Scopus subject areas

UN SDGs

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