Mismatch Shocks and Unemployment During the Great Recession

98 Pages Posted: 30 Aug 2014 Last revised: 1 Jun 2015

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2015

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 not important 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 around 1.3 percentage points and the natural rate by around 2 percentage points. The mismatch shock is the dominant driver of the natural rate of unemployment and explains part of the recent shift of the Beveridge curve.

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 1, 2015). CAMA Working Paper No. 17/2015. Available at SSRN: https://ssrn.com/abstract=2488843 or http://dx.doi.org/10.2139/ssrn.2488843

Francesco Furlanetto

Norges Bank ( email )

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

Nicolas Groshenny (Contact Author)

University of Adelaide ( email )

No 233 North Terrace, School of Commerce
Adelaide, South Australia 5005
Australia

HOME PAGE: http://www.adelaide.edu.au/

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