Search Results

You are looking at 1 - 10 of 78 items for :

  • "labor wedge" x
Clear All
Mr. Murat Tasci and Mr. Andrea Pescatori
This paper shows that labor market search frictions do not explain fluctuations in the labor wedge per se. However, the introduction of extensive and intensive margin clarifies that measuring the MRS in terms of total hours artificially introduces procyclicality in the MRS. When the MRS is correctly measured in terms of hours per worker, the labor wedge obtained is less variable than the one of the competitive model. Finally, we show that it is possible to measure a strongly procyclical labor wedge when the actual data generating process is a search model that allows for movements in both margins.
Mr. Murat Tasci and Mr. Andrea Pescatori

work, Chari Kehoe and McGrattan (2007) (henceforth CKM) conclude that, along with the efficiency wedge, the labor wedge accounts for most of the fluctuations in output, putting it at the center of their business cycle accounting research program. 1 We interpret this finding as an indication of a significant misspecification of the prototype RBC model as it relates to the labor market. Search and matching frictions ( Mortensen and Pissarides 1994 , Pissarides 2000 ) introduce a wedge between the wage and both the mpl and the mrs , providing a natural framework

Dmitry Plotnikov
I carry out a business cycle accounting exercise (Chari, Kehoe and McGrattan, 2007) on the U.S. data measured in wage units (Farmer (2010)) for the entire postwar period. In contrast to a conventional approach, this approach preserves common medium-term business cycle fluctuations in GDP, its components and the unemployment rate. Additionally, it facilitates decomposition of the labor wedge into the labor supply and the labor demand wedges. Using this business cycle accounting methodology, I find that in the transformed data, most movements in GDP are accounted for by the labor supply wedge. Therefore, I reverse a key finding of the real business cycle literature which asserts that 70% or more of economic fluctuations can be explained by TFP shocks. In other words, the real business cycle model fits the data badly because the assumption that households are on their labor supply equation is flawed. This failure is masked by data that has been filtered with a conventional approach that removes fluctuations at medium frequencies. My findings are consistent with the literature on incomplete labor markets.
Dmitry Plotnikov

introduce wedges in the model’s equations that do not hold exactly in the data. Second, I estimate this model using Bayesian techniques and obtain smoothed values for all wedges (see Section 4 for details). By constructing the wage series I am able to decompose the labor wedge - the residual in the equation describing a labor market equilibrium - into the labor supply and the labor demand wedges. This means I evaluate the model’s predictions about labor supply and labor demand independently. This contrasts with the conventional approach in the real business cycle

Mr. Ruy Lama
This paper evaluates what type of models can account for the recent episodes of output drops in Latin America. I develop an open economy version of the business cycle accounting methodology (Chari, Kehoe, and McGrattan, 2007) in which output fluctuations are decomposed into four sources: total factor productivity (TFP), a labor wedge, a capital wedge, and a bond wedge. The paper shows that the most promising models are the ones that induce fluctuations of TFP and the labor wedge. On the other hand, models of fnancial frictions that translate into a bond or capital wedge are not successful in explaining output drops in Latin America. The paper also discusses the implications of these results for policy analysis using alternative DSGE models.
Mr. Ruy Lama

specifications that can induce discrepancies of the standard neoclassical model from the data. For example, a significant gap in the consumption-leisure first order condition or “labor wedge” can be observed if the economy faces increased distortions in the labor market associated with sticky wages or increases in wage markups because of stronger labor unions. 2 These frictions generate a wedge between the marginal rate of substitution of consumption and leisure and the real wage. The second step consists in evaluating the quantitative relevance of these gaps to account for

International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper for Chile describes the postcrisis recovery experience. The recovery from the 2008–2009 global crisis has been markedly different both among advanced and emerging economies. The steady improvement in the labor wedge-distortions related to the consumption leisure decision helped support the recovery. In Chile, the growth generated by this improvement, was sufficient to overcome the relatively weak performance of efficiency (TFP). Chile’s recovery has been characterized by strong investment growth, 0.8 percentage points higher than the precrisis trend. The establishment of the Financial Stability Council in 2011 is an important step to ensure close coordination among the institutions involved in Chile’s financial prudential framework.