Technology Shocks, Employment and Labour Market Frictions
Federal Reserve Bank of Atlanta
Bank of England
June 3, 2010
Bank of England Working Paper No. 390
Recent empirical evidence suggests that a positive technology shock leads to a decline in labour inputs. However, the standard real business model fails to account for this empirical regularity. Can the presence of labour 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, labour market frictions to generate a negative response of employment to a technology shock. The results of the estimation support the hypothesis that labour market frictions are the factor responsible for the negative response of employment.
Number of Pages in PDF File: 29
Keywords: Technology shocks, employment, labour market frictions
JEL Classification: E32working papers series
Date posted: June 4, 2010
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