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Investment-Specific Shocks and Cyclical Fluctuations in a Frictional Labor Market

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  • Toledo Manuel

    (Universidad Carlos III de Madrid)

  • Silva José I

    (Universitat de Girona)

Abstract

This paper studies the role of investment-specific shocks as an amplification mechanism of labor market fluctuations. We first show evidence suggesting that after a fall in the relative price of new equipment, not only do investment and output increase but firms also post more vacancies, hours worked increase and unemployment falls. Moreover, we study the quantitative impact of investment-specific shocks on the labor market by incorporating them in a Real Business Cycle model with search and matching frictions. We find that these shocks have a significant amplification effect on labor market fluctuations, increasing the volatility of unemployment, vacancies and total hours more than twofold.

Suggested Citation

  • Toledo Manuel & Silva José I, 2010. "Investment-Specific Shocks and Cyclical Fluctuations in a Frictional Labor Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-39, April.
    • Handle: RePEc:bpj:bejmac:v:10:y:2010:i:1:n:9
    DOI: 10.2202/1935-1690.1654
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    Cited by:

    1. Faccini, Renato & Ortigueira, Salvador, 2010. "Labor-market volatility in the search-and-matching model: The role of investment-specific technology shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1509-1527, August.
    2. Javier Ordóñez & Hector Sala & José I. Silva, 2011. "Oil Price Shocks and Labor Market Fluctuations," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 89-118.

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    More about this item

    Keywords

    investment-specific shocks; labor market volatility; business cycles; vacancies; unemployment; capacity utilization;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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