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Intersectoral Labour Reallocation and Employment Volatility: A Bayesian Analysis using a VAR-GARCH-M model

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  • Gianluigi Pelloni
  • Wolfgang Polasek

Abstract

Based on the macroeconomic VAR model for total employment and sectoral employment shares developed by Campbell and Kuttner (1996) we extend the model to a multivariate ARCH in mean (ARCH- M) model. We investigate the question of whether volatile growth in sectoral employment shares has an impact on total employment. The estimation method we use is the Gibbs-Metropolis algorithm for a Bayesian vector ARCH (B-VAR) model. This model is a standard tool in Financial econometrics and was developed by Engle (1986). The Bayesian estimation gives an exact small sample solution. It is found that a model incorporating a GARCH-M structure performs better than a simple VAR. Moreover sectoral shocks can account for more than 60% of the variance of total employment growth within a VAR-GARCH-M framework.

Suggested Citation

  • Gianluigi Pelloni & Wolfgang Polasek, "undated". "Intersectoral Labour Reallocation and Employment Volatility: A Bayesian Analysis using a VAR-GARCH-M model," Discussion Papers 99/4, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:99/4
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    References listed on IDEAS

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    Cited by:

    1. Theodore Panagiotidis & Gianluigi Pelloni, 2014. "Asymmetry and Lilien’s Sectoral Shifts Hypothesis: A Quantile Regression Approach," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 6(1), pages 68-86, June.
    2. Giovanni Gallipoli & Gianluigi Pelloni, 2013. "Macroeconomic Effects of Job Reallocations: A Survey," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 5(2), pages 127-176, December.
    3. Gianluigi Pelloni & Wolfgang Polasek, 2003. "Macroeconomic Effects of Sectoral Shocks in Germany, The U.K. and, The U.S. A VAR-GARCH-M Approach," Computational Economics, Springer;Society for Computational Economics, vol. 21(1), pages 65-85, February.
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    5. Pelloni, Gianluigi & Panagiotidis, Theodore, 2003. "Macroeconomic Effects of Reallocation Shock: A Generalished Impulse Response Function Analysis for Three European Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 18, pages 794-816.
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    8. Maixé-Altés, J. Carles & Iglesias, Emma M., 2009. "Domestic monetary transfers and the inland bill of exchange markets in Spain (1775-1885)," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 496-521, April.
    9. Giovanni Gallipoli & Gianluigi Pelloni, 2008. "Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature," Working Paper series 27_08, Rimini Centre for Economic Analysis.

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