Assessing the empirical relevance of labor frictions to business cycle fluctuations

Joao Antonio Rodrigues Madeira

doi:10.1111/obes.12215

Assessing the empirical relevance of labor frictions to business cycle fluctuations

Joao Antonio Rodrigues Madeira

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

This paper describes a DSGE model augmented with labor frictions, namely: indivisible labor, 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 labor frictions introduced are relevant for model dynamics and economic policy: the effect of TFP 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. Labor frictions also provide a better match to impulse response functions from VAR models.

Original language	English
Pages (from-to)	1-21
Number of pages	21
Journal	Oxford Bulletin of Economics and Statistics
Early online date	31 Oct 2017
DOIs	https://doi.org/10.1111/obes.12215
Publication status	E-pub ahead of print - 31 Oct 2017

Bibliographical note

© 2017 The Department of Economics, University of Oxford and John Wiley & Sons Ltd. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details.

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10.1111/obes.12215

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© 2017 The Department of Economics, University of Oxford and John Wiley & Sons Ltd. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details.
Accepted author manuscript, 309 KB

Joao Antonio Rodrigues Madeira
- jm1729york.acuk
- Economics - Senior Lecturer, Former employee
Person: Academic

Cite this

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Assessing the empirical relevance of labor frictions to business cycle fluctuations

Abstract

Bibliographical note

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Joao Antonio Rodrigues Madeira

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