Paper #1213

Title:

The ins and outs of unemployment: An analysis conditional on technology shocks

Authors:

Fabio Canova, David Lopez-Salido and Claudio Michelacci

Date:

October 2009 (Revised: January 2012)

Abstract:

We analyze how unemployment, job finding and job separation rates react to neutral and investment-specific technology shocks. Neutral shocks increase unemployment and explain a substantial portion of it volatility; investment-specific shocks expand employment and hours worked and contribute to hours worked volatility. Movements in the job separation rates are responsible for the impact response of unemployment while job finding rates for movements along its adjustment path. The evidence warns against using models with exogenous separation rates and challenges the conventional way of modelling technology shocks in search and sticky price models.

Keywords:

Unemployment, technological progress, labor market flows, business cycle models.

JEL codes:

E00, J60, O33.

Area of Research:

Macroeconomics and International Economics

Published in:

Economic Journal, Forthcoming 2012

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