The Aggregate Effects of Sectoral Reallocations

Posted: 23 Sep 2001

See all articles by Christopher Phelan

Christopher Phelan

Federal Reserve Bank of Minneapolis

Alberto Trejos

INCAE; Northwestern University - Department of Economics


Can a one-time, permanent change in the fundamentals behind the sectoral composition of the economy prompt an aggregate downturn? Can this downturn be non-negligible, even if one uses US data to determine the relative size of gross vs. net job flows, and the importance of job creation costs? Can one consider the military build-down of the 1990s as a plausible cause for the 1990--1991 recession? Do sectoral reallocations generate responses that are qualitatively similar to `productivity shocks?' We use a variant of the Mortensen--Pissarides (1994. Review of Economic Studies 61, 397--415) job creation/destruction model, calibrate it to US labor market data, and run experiments that suggest one can answer yes to all these questions.

Keywords: Sectoral shocks, Business cycles, Matching

JEL Classification: E32

Suggested Citation

Phelan, Christopher J. and Trejos Zuniga, Alberto, The Aggregate Effects of Sectoral Reallocations. Available at SSRN:

Christopher J. Phelan (Contact Author)

Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States
612-204-5615 (Phone)


Alberto Trejos Zuniga

INCAE ( email )

Campus de Alajuela
Apartado 960-4050
Costa Rica

Northwestern University - Department of Economics

2003 Sheridan Road
Evanston, IL 60208
United States

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