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Publication Detailed Description
Assessing the empirical relevance of labour frictions to business cycle fluctuations
Journal Title
Oxford Bulletin of Economics and Statistics
Year (definitive publication)
2018
Language
English
Country
United States of America
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Abstract
This paper describes a dynamic stochastic general equilibrium model augmented with labour frictions, namely: indivisible labour, predetermined employment and adjustment costs. This improves the fit to the data as shown by a higher log marginal likelihood and closer match to key business cycle statistics. The labour frictions introduced are relevant for model dynamics and economic policy: the effect of total factor productivity shocks on most macroeconomic variables is substantially mitigated; fiscal policy leads to a greater crowding out of private sector activity and monetary policy has a lower impact on output. Labour frictions also provide a better match to impulse response functions from vector autoregressive models.
Acknowledgements
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Keywords
Fields of Science and Technology Classification
- Mathematics - Natural Sciences
- Economics and Business - Social Sciences
- Sociology - Social Sciences
- Other Social Sciences - Social Sciences
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