News shocks and labor market dynamics in matching models

Working paper

We enrich a baseline RBC model with search and matching frictions on the labor market and real frictions that are helpful in accounting for the response of macroeconomic aggregates to shocks. The analysis allows shocks to have an unanticipated and a new (i.e. anticipated) component. The Bayesian estimation of the model reveals that the model which includes news shocks on macroeconomic aggregates produces a remarkable fit of the data. News shocks in stationary and non-stationary TFP, investment-specific productivity and preference shocks significantly affect labor market variables and explain a sizeable fraction of macroeconomic fluctuations at medium- and long-run horizons. Historically, news shocks have played a relevant role for output, but they have had a limited influence on unemployment.

Authors: Zanetti, F; Theodoridis, K

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2015-04-17
• Paper number: 745
• Keywords: labour market search frictions; anticipated productivity shocks; Bayesian SVAR methods