Mismatch Shocks and Unemployment During the Great Recession
98 Pages Posted: 30 Aug 2014 Last revised: 1 Jun 2015
Date Written: June 1, 2015
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: Suggested Citation