Mismatch Shocks and Unemployment During the Great Recession

51 Pages Posted: 12 Nov 2013

See all articles by Francesco Furlanetto

Francesco Furlanetto

Norges Bank

Nicolas Groshenny

Reserve Bank of New Zealand; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Multiple version iconThere are 2 versions of this paper

Date Written: June 27, 2013

Abstract

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

Suggested Citation

Furlanetto, Francesco and Groshenny, Nicolas, Mismatch Shocks and Unemployment During the Great Recession (June 27, 2013). Norges Bank Working Paper 16. Available at SSRN: https://ssrn.com/abstract=2352992 or http://dx.doi.org/10.2139/ssrn.2352992

Francesco Furlanetto (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Nicolas Groshenny

Reserve Bank of New Zealand ( email )

6011

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

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