TY - JOUR
T1 - Frictional unemployment with stochastic bubbles
AU - Vuillemey, Guillaume
AU - Wasmer, Etienne
N1 - Publisher Copyright:
© 2019
PY - 2020/2
Y1 - 2020/2
N2 - We show that the volatility puzzle in labor economics (Shimer, 2005) stems from the inability of technology shocks to generate sufficient volatility of firm value. We introduce non-fundamental shocks to firm value, akin to bubbles, into an otherwise standard search-and-matching model. When calibrated to stock market data, stochastic bubbles significantly improve the ability of the matching model to quantitatively explain the volatility of the US labor market. An extension with multiple sectors improves the persistence of simulated labor market variables.
AB - We show that the volatility puzzle in labor economics (Shimer, 2005) stems from the inability of technology shocks to generate sufficient volatility of firm value. We introduce non-fundamental shocks to firm value, akin to bubbles, into an otherwise standard search-and-matching model. When calibrated to stock market data, stochastic bubbles significantly improve the ability of the matching model to quantitatively explain the volatility of the US labor market. An extension with multiple sectors improves the persistence of simulated labor market variables.
KW - Bubbles
KW - Labor frictions
KW - Unemployment volatility
UR - http://www.scopus.com/inward/record.url?scp=85077036270&partnerID=8YFLogxK
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U2 - 10.1016/j.euroecorev.2019.103352
DO - 10.1016/j.euroecorev.2019.103352
M3 - Article
AN - SCOPUS:85077036270
SN - 0014-2921
VL - 122
JO - European Economic Review
JF - European Economic Review
M1 - 103352
ER -