Job Destruction and Propagation of Shocks
Wouter J. den Haan, Garey Ramey, Joel Watson
American Economic Review · 2000 · Volume 90 · Issue 3
Abstract
This paper considers propagation of aggregate shocks in a dynamic general-equilibrium model with labor-market matching and endogenous job destruction. Cyclical fluctuations in the job-destruction rate magnify the output effects of shocks, as well as making them much more persistent. Interactions between capital adjustment and the job-destruction rate play an important role in generating persistence. Propagation effects are shown to be quantitatively substantial when the model is calibrated using job-flow data. incorporating costly capital adjustment leads to significantly greater propagation.
Keywords
Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Business Fluctuations, Cycles
Enable JavaScript for citation tools and additional paper interactions.