Matching efficiency and business cycle fluctuations

Release date
01/08/2012
Reference
DP2012/06
Authors
Francesco Furlanetto; Nicolas Groshenny
Published as
Furlanetto, Francesco and Nicolas Groshenny (2016). ‘Mismatch shocks and unemployment during the Great Recession’, Journal of Applied Econometrics, Wiley, Volume 31(7), Pages 1197-1214, DOI: https://doi.org/10.1002/jae.2498.

A large decline in the efficiency of the US labour market in matching unemployed workers and vacant jobs has been documented during the Great Recession. We use a simple New Keynesian model with search and matching frictions in the labour market to study the macroeconomic implications of matching efficiency shocks. We show that the propagation of these disturbances and their importance for business cycle fluctuations depend crucially on the form of hiring costs and on the presence of nominal rigidities.