Mismatch Shocks and Unemployment During the Great Recession
51 Pages Posted: 12 Nov 2013
Date Written: June 27, 2013
We investigate the macroeconomic consequences of fluctuations in the effectiveness of the labor-market matching process with a focus on the Great Recession. We conduct our analysis in the context of an estimated medium-scale DSGE model with sticky prices and equilibrium search unemployment that features a shock to the matching efficiency (or mismatch shock). We find that this shock is almost irrelevant for unemployment fluctuations in normal times. However, it plays a somewhat larger role during the Great Recession when it contributes to raise the actual unemployment rate by 1.25 percentage points and the natural rate by 2 percentage points. Moreover, it is the only shock that generates a positive conditional correlation between unemployment and vacancies.
Keywords: Search and matching frictions, Unemployment, Natural rates
JEL Classification: E32, C51, C52
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