Investment-Specific Technology Shocks and Labor Market Frictions
Reinout De Bock
International Monetary Fund (IMF)
February 1, 2007
National Bank of Belgium Working Paper No. 108
This paper studies the implications of technical progress through investment-specific technical change in a business cycle model with search and matching frictions and endogenous job destruction. The interaction between the capital formation needed to reap the benefits of an investment-specific technology shock and gradual labor-market matching, generates hump-shaped, persistent responses in output, vacancies, and unemployment. The endogenous job destruction decision also leads to small but persistent endogenous fluctuations in total factor productivity. Simulations suggest a limited role for investment-specific technology shocks as a source of business cycle fluctuations compared to a standard real business cycle model.
Number of Pages in PDF File: 43
Keywords: Labor Market Frictions, Investment-specific Technology Shocks, Business Cycles
JEL Classification: E24, E32, J64working papers series
Date posted: October 7, 2010
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