Technology Shocks, Employment, and Labor Market Frictions
Federal Reserve Bank of Atlanta
Bank of England
FRB Atlanta Working Paper 2008-10
Recent empirical evidence suggests that a positive technology shock leads to a decline in labor inputs. However, the standard real business cycle model fails to account for this empirical regularity. Can the presence of labor market frictions address this problem without otherwise altering the functioning of the model? We develop and estimate a real business cycle model using Bayesian techniques that allows but does not require labor market frictions to generate a negative response of employment to a technology shock. The results of the estimation support the hypothesis that labor market frictions are responsible for the negative response of employment.
Number of Pages in PDF File: 36
Keywords: technology shocks, employment, labor market frictions
JEL Classification: E32working papers series
Date posted: May 5, 2008
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