Hostname: page-component-78c5997874-94fs2 Total loading time: 0 Render date: 2024-11-10T22:03:30.022Z Has data issue: false hasContentIssue false
  • English
  • Français

FINANCIAL SHOCKS, JOB DESTRUCTION SHOCKS, AND LABOR MARKET FLUCTUATIONS

Published online by Cambridge University Press:  17 July 2017

Francesco Zanetti
Francesco Zanetti*
Affiliation:
University of Oxford
*
Address correspondence to: Francesco Zanetti, Department of Economics, University of Oxford, Manor Road, Oxford, OX1 3UQ, UK; e-mail: francesco.zanetti@economics.ox.ac.uk.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper investigates the effect of financial shocks using a general equilibrium model that links the firm's flows of financing with labor market variables. The results show that financial shocks have sizeable effects on debt, dividend payout, and wages. Shocks to the job destruction rate are important in explaining fluctuations in unemployment. The analysis also investigates the underlying driving forces of some key comovements in the data and finds shocks to the job destructions rate important.

Keywords

Business CycleLabor Market FrictionsFinancial ShocksJob Destruction Shocks
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 3 , April 2019 , pp. 1137 - 1165
Copyright
Copyright © Cambridge University Press 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

This paper supersedes a previously circulated draft under the title “Financial Shocks and Labor Market Fluctuations.” I am very grateful to an Associate Editor, two anonymous referees, Yunus Aksoy, Fabio Braggion, Tatiana Damjanovic, Wouter den Haan, Federico di Pace, Jordi Gali, Peter Ireland, Joao Madeira, Christopher Martin, Vincenzo Quadrini, Michał Rubaszek, Lydia Silver, Christoph Thoenissen, Carlos Thomas, Simon Wren-Lewis, and seminar participants at the Bank of England, Bank of Spain, De Nederlandsche Bank, Higher School of Economics, National Bank of Poland, University of Exeter, University of Birkbeck, University of Manchester, University of Oxford, University of Tilburg, University of Sheffield, the Annual Congress of the European Economic Association in the University of Gothenburg, the Money, Macro and Finance Research Group Conference in Birmingham University and Queen Mary University, the Royal Economic Society Annual Conference in Cambridge University, the Growth and Business Cycle in Theory and Practice in Manchester University, the Macroeconomics Conference in Bath University and the Unicredit Conference in Pavia University for extremely useful comments and suggestions.

References

REFERENCES

Aksoy, Y., Basso, H. S., and Coto-Martinez, J. (2013) Lending relationships and monetary policy. Economic Inquiry 51, 368–393.Google Scholar
Altinkilic, O. and Hansen, R. S. (2000) Are there economies of scale in underwriting fees? Evidence of rising external financing costs. Review of Financial Studies 13, 191–218.Google Scholar
An, S. and Schorfheide, F. (2007) Bayesian analysis of DSGE models. Econometric Reviews 26, 113–172.Google Scholar
Andolfatto, D. (1996) Business cycles and labor-market search. American Economic Review 86, 112–132.Google Scholar
Atolia, M., Gibson, J., and Marquis, M. (2015) Labor Market Dynamics with Search Frictions: Impact of Financing Constraints due to Moral Hazard During Severe Economic Downturns. Mimeo, Florida State University.Google Scholar
Bernanke, B. S., Gertler, M., and Gilchrist, S. (1999) The financial accelerator in a quantitative business cycle framework. In Taylor, J. B. and Woodford, M. (eds.), Handbook of Macroeconomics, vol. 1, chapter 21, pp. 1341–1393. Cambridge, MA: Elsevier.Google Scholar
Blanchard, O. J. and Gali, J. (2010) Labor markets and monetary policy: A New-Keynesian model with unemployment. American Economic Journal: Macroeconomics 2, 1–30.Google Scholar
Card, D. (1994) Intertemporal labor supply: An assessment. In Sims, C. (ed.), Advances in Econometrics 6th World Congress, vol. 2, pp. 49–78. Cambridge, MA: Cambridge University Press.Google Scholar
Christiano, L., Motto, R., and Rostagno, M. (2010) Financial Factors in Economic Fluctuations. Working paper series 1192. European Central Bank.Google Scholar
Christiano, L. J., Trabandt, M., and Walentin, K. (2011) Introducing financial frictions and unemployment into a small open economy model. Journal of Economic Dynamics and Control 35, 1999–2041.Google Scholar
Chugh, S. K. (2013) Costly external finance and labor market dynamics. Journal of Economic Dynamics and Control 37, 2882–2912.Google Scholar
Covas, F. and Den Haan, W. J. (2011) The cyclical behavior of debt and equity finance. American Economic Review 101, 877–899.Google Scholar
Davis, S. J., Faberman, R. J., and Haltiwanger, J. (2006) The flow approach to labor markets: New data sources and micro-macro links. Journal of Economic Perspectives 20, 3–26.Google Scholar
Fernandez-Villaverde, J., Guerron-Quintana, P., Kuester, K., and Rubio-Ramirez, J. (2015) Fiscal volatility shocks and economic activity. American Economic Review 105, 3352–3384.Google Scholar
Fernandez-Villaverde, J. and Rubio-Ramirez, J. (2007) Estimating macroeconomic models: A likelihood approach. Review of Economic Studies 74, 1059–1087.Google Scholar
Fisher, J. D. M. (2006) The dynamic effects of neutral and investment-specific technology shocks. Journal of Political Economy 114, 413–451.Google Scholar
Fujita, S. and Ramey, G. (2009) The cyclicality of separation and job finding rates. International Economic Review 50, 415–430.Google Scholar
Gali, J. (2010) Monetary policy and unemployment. In Friedman, B. M. and Woodford, M. (eds.), Handbook of Monetary Economics, vol. 3, chapter 10, pp. 487–546. Cambridge, MA: Elsevier.Google Scholar
Garin, J. (2015) Borrowing constraints, collateral fluctuations, and the labor market. Journal of Economic Dynamics and Control 57, 112–130.Google Scholar
Hall, R. E. (2011) The high sensitivity of economic activity to financial frictions. Economic Journal 121, 351–378.Google Scholar
Hennessy, C. A. and Whited, T. M. (2005) Debt dynamics. Journal of Finance 60, 1129–1165.Google Scholar
Hosios, A. J. (1990) On the efficiency of matching and related models of search and unemployment. Review of Economic Studies 57, 279–98.Google Scholar
Iacoviello, M. (2005) House prices, borrowing constraints, and monetary policy in the business cycle. American Economic Review 95, 739–764.Google Scholar
Iacoviello, M. and Neri, S. (2010) Housing market spillovers: Evidence from an estimated DSGE model. American Economic Journal: Macroeconomics 2, 125–64.Google Scholar
Ireland, P. N. (2004) A method for taking models to the data. Journal of Economic Dynamics and Control 28, 1205–1226.Google Scholar
Ireland, P. N. (2011) A New Keynesian perspective on the great recession. Journal of Money, Credit and Banking 43, 31–54.Google Scholar
Jermann, U. and Quadrini, V. (2012) Macroeconomic effects of financial shocks. American Economic Review 102, 238–271.Google Scholar
Khan, H. and Tsoukalas, J. (2011) Investment shocks and the comovement problem. Journal of Economic Dynamics and Control 35, 115–130.Google Scholar
King, R. G. and Rebelo, S. T. (1999) Resuscitating real business cycles. Handbook of Macro-Economics 1, 927–1007.Google Scholar
Klein, P. (2000) Using the generalized Schur form to solve a multivariate linear rational expectations model. Journal of Economic Dynamics and Control 24, 1405–1423.Google Scholar
Lintner, J. (1956) Distribution of incomes of corporations among dividends, retained earnings, and taxes. American Economic Review 46, 97–113.Google Scholar
Mandelman, F. S. and Zanetti, F. (2014) Flexible prices, labor market frictions and the response of employment to technology shocks. Labour Economics 26, 94–102.Google Scholar
Mountford, A. and Uhlig, H. (2009) What are the effects of fiscal policy shocks? Journal of Applied Econometrics 24, 960–992.Google Scholar
Mumtaz, H. and Zanetti, F. (2012) Neutral technology shocks and the dynamics of labor input: Results from an agnostic identification. International Economic Review 53, 235–254.Google Scholar
Mumtaz, H. and Zanetti, F. (2015) Factor adjustment costs: A structural investigation. Journal of Economic Dynamics and Control 51, 341–355.Google Scholar
Mumtaz, H. and Zanetti, F. (2016) The effect of labor and financial frictions on aggregate fluctuations. Macroeconomic Dynamics 20, 313–341.Google Scholar
Nolan, C. and Thoenissen, C. (2009) Financial shocks and the US business cycle. Journal of Monetary Economics 56, 596–604.Google Scholar
Petrongolo, B. and Pissarides, C. A. (2001) Looking into the black box: A survey of the matching function. Journal of Economic Literature 39, 390–431.Google Scholar
Petrosky-Nadeau, N. (2014) Credit, vacancies and unemployment fluctuations. Review of Economic Dynamics 17, 191–205.Google Scholar
Petrosky-Nadeau, N. and Wasmer, E. (2013) The cyclical volatility of labor markets under frictional financial markets. American Economic Journal: Macroeconomics 5, 193–221.Google Scholar
Pissarides, C. A. (2000) Equilibrium Unemployment Theory. Cambridge, MA: The MIT Press.Google Scholar
Rotemberg, J. J. (2008) Cyclical wages in a search-and-bargaining model with large firms. In NBER International Seminar on Macroeconomics 2006. NBER, NBER Chapters, pp. 65–114.Google Scholar
Rubio, M. (2011) Fixed and variable-rate mortgages, business cycles and monetary policy. Journal of Money, Credit and Banking 43, 657–688.Google Scholar
Shimer, R. (2005) The cyclical behavior of equilibrium unemployment and vacancies. American Economic Review 95, 25–49.Google Scholar
Silos, P. (2007) Housing, portfolio choice and the macroeconomy. Journal of Economic Dynamics and Control 31, 2774–2801.Google Scholar
Thomas, C. (2008) Search and matching frictions and optimal monetary policy. Journal of Monetary Economics 55, 936–956.Google Scholar
Thomas, C. and Zanetti, F. (2009) Labor market reform and price stability: An application to the Euro Area. Journal of Monetary Economics 56, 885–899.Google Scholar
Wasmer, E. and Weil, P. (2004) The macroeconomics of labor and credit market imperfections. American Economic Review 94, 944–963.Google Scholar
Yashiv, E. (2007) US labor market dynamics revisited. Scandinavian Journal of Economics 109, 779–806.Google Scholar
Zanetti, F. (2015) Financial Shocks and Labor Market Fluctuations. Economics Series working papers number 746. University of Oxford, Department of Economics.Google Scholar