Hostname: page-component-76fb5796d-wq484 Total loading time: 0 Render date: 2024-04-27T06:16:55.864Z Has data issue: false hasContentIssue false
  • English
  • Français

THE CONDITIONAL INS AND OUTS OF FRENCH UNEMPLOYMENT

Published online by Cambridge University Press:  03 December 2019

Idriss Fontaine
Idriss Fontaine*
Affiliation:
Université de La Réunion
*
Address correspondence to: Fontaine Idriss, CEMOI, Université de La Réunion. e-mail: idriss.fontaine@univ-reunion.fr. Phone: +262692838203.
Get access Rights & Permissions [Opens in a new window]

Abstract

In this paper, I investigate the conditional contributions of the ins and outs of unemployment from both empirical and theoretical perspectives. Based on a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) theoretical framework, I estimate a sign restriction Vector Auto Regressive (VAR) model using French data. To identify the origins of unemployment dynamics in terms of worker transition rates, I simulate two shocks: one on the supply side (technology) and the other on the demand side (monetary). The VAR model reveals that the contributions of transition rates in explaining unemployment differ across shocks. After a technology shock, unemployment fluctuations are mainly explained by the job finding process, while the contributions of the two margins are more balanced for the monetary shock. The theoretical model is not able to reproduce the underlying mechanisms inducing unemployment. In particular, the conditional contributions of the job separation margin are overestimated each time. For instance, after a technology shock, 60% of unemployment changes are generated by this margin, while the data suggest a contribution of 28%. This paper strongly indicates that, in its standard formulation, a search and matching DSGE model featuring endogenous job separations is not able to replicate the dominating influence of the outflow process.

Keywords

Unemployment VariationsTransition RatesSign RestrictionsDSGE Models
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 7 , October 2021 , pp. 1810 - 1841
Copyright
© Cambridge University Press 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I would like to thank Alexis Parmentier, Michel Paul, François Langot, Thepthida Sopraseuth, Fabien Tripier, Francesco Zanetti, Zoulfikar Mehoumoud-Issop, participants of the 65th AFSE congress, and participants of the CEMOI seminar for their highly valuable comments. I also thank the associate editor of Macroeconomic Dynamics and two anonymous referees for their enlightening suggestions that greatly improved the quality of this article. Finally, I address a special thanks to Olivia Ricci for her help during the proofreading of the paper. All remaining errors are my own.

References

REFERENCES

Abowd, J. M. and Kramarz, F. (2003) The costs of hiring and separations. Labour Economics 10(5), 499–530.10.1016/S0927-5371(03)00017-4CrossRefGoogle Scholar
Balleer, A. (2012) New evidence, old puzzles: Technology shocks and labor market dynamics. Quantitative Economics 3(3), 363–392.10.3982/QE35CrossRefGoogle Scholar
Bernanke, B. and Blinder, A. (1992) The federal funds rate and the channels of monetary transmission. The American Economic Review 82(4), 901–921.Google Scholar
Blanchard, O. and Galí, J. (2010) Labor markets and monetary policy: A new keynesian model with unemployment. American Economic Journal: Macroeconomics 2(2), 1–30.Google Scholar
Braun, H., Bock, R. D. and DiCecio, R. (2007) Supply Shocks, Demand Shocks, and Labor Market Fluctuations. Working Paper, Federal Reserve Bank of St. Louis.10.20955/wp.2007.015CrossRefGoogle Scholar
Burda, M. and Wyplosz, C. (1994) Gross worker and job flows in Europe. European Economic Review 38(6), 1287–1315.10.1016/0014-2921(94)90076-0CrossRefGoogle Scholar
Calvo, G. A. (1983) Staggered prices in a utility-maximizing framework. Journal of Monetary Economics 12(3), 383–398.10.1016/0304-3932(83)90060-0CrossRefGoogle Scholar
Canova, F., Lopez-Salido, D. and Michelacci, C. (2013) The ins and outs of unemployment: An analysis conditional on technology shocks. The Economic Journal 123(569), 515–539.10.1111/j.1468-0297.2012.02548.xCrossRefGoogle Scholar
Chari, V., Kehoe, P. J. and McGrattan, E. R. (2008) Are structural {VARs} with long-run restrictions useful in developing business cycle theory? Journal of Monetary Economics 55(8), 1337–1352.10.1016/j.jmoneco.2008.09.010CrossRefGoogle Scholar
Christoffel, K., Kuester, K. and Linzert, T. (2009) The role of labor markets for euro area monetary policy. European Economic Review 53(8), 908–936.10.1016/j.euroecorev.2009.04.007CrossRefGoogle Scholar
Chéron, A. and Langot, F. (2004) Labor market search and real business cycles: Reconciling nash bargaining with the real wage dynamics. Review of Economic Dynamics 7(2), 476–493.10.1016/j.red.2003.11.003CrossRefGoogle Scholar
den Haan, W. J., Ramey, G. and Watson, J. (2000) Job destruction and propagation of shocks. American Economic Review 90(3), 482–498.10.1257/aer.90.3.482CrossRefGoogle Scholar
Elsby, M. W. L., Hobijn, B. and Sahin, A. (2013) Unemployment dynamics in the OECD. The Review of Economics and Statistics 95(2), 530–548.10.1162/REST_a_00277CrossRefGoogle Scholar
Elsby, M. W. L., Michaels, R. and Solon, G. (2009) The ins and outs of cyclical unemployment. American Economic Journal: Macroeconomics 1(1), 84–110.Google Scholar
Faust, J. and Leeper, E. M. (1997) When do long-run identifying restrictions give reliable results? Journal of Business & Economic Statistics 15(3), 345–353.Google Scholar
Fontaine, I. (2016) French unemployment dynamics: A three-state approach. Revue d’Economie Politique 126(5), 835–869.10.3917/redp.265.0835CrossRefGoogle Scholar
Foroni, C., Furlanetto, F. and Lepetit, A. (2018) Labour supply factors and economic fluctuations. International Economic Review 59(3), 1491–1510.10.1111/iere.12311CrossRefGoogle Scholar
Fry, R. and Pagan, A. (2011) Sign restrictions in structural vector autoregressions: A critical review. Journal of Economic Literature 49(4), 938–960.10.1257/jel.49.4.938CrossRefGoogle Scholar
Fujita, S. (2011) Dynamics of worker flows and vacancies: Evidence from the sign restriction approach. Journal of Applied Econometrics 26(1), 89–121.10.1002/jae.1111CrossRefGoogle Scholar
Fujita, S. and Ramey, G. (2009) The cyclicality of separation and job finding rates. International Economic Review 50(2), 415–430.10.1111/j.1468-2354.2009.00535.xCrossRefGoogle Scholar
Fujita, S. and Ramey, G. (2012) Exogenous versus Endogenous Separation. American Economic Journal: Macroeconomics 4(4), 68–93.Google Scholar
Galí, J. (2010) Monetary policy and unemployment. In: Friedman, B. M. and Woodford, M. (eds.), Handbook of Monetary Economics, vol. 3, pp. 487–546. Elsevier.10.1016/B978-0-444-53238-1.00010-7CrossRefGoogle Scholar
Gali, J. (1999) Technology, employment, and the business cycle: Do technology shocks explain aggregate fluctuations? American Economic Review 89(1), 249–271.10.1257/aer.89.1.249CrossRefGoogle Scholar
Hagedorn, M. and Manovskii, I. (2008) The cyclical behavior of equilibrium unemployment and vacancies revisited. American Economic Review 98(4), 1692–1706.10.1257/aer.98.4.1692CrossRefGoogle Scholar
Hairault, J.-O., Le Barbanchon, T. and Sopraseuth, T. (2015) The cyclicality of the separation and job finding rates in France. European Economic Review 76, 60–84.10.1016/j.euroecorev.2015.01.013CrossRefGoogle Scholar
Hairault, J.-O. and Zhutova, A. (2018) The cyclicality of labor-market flows: A multiple-shock approach. European Economic Review 103, 150–172.10.1016/j.euroecorev.2018.01.008CrossRefGoogle Scholar
Kydland, F. E. and Prescott, E. C. (1982) Time to build and aggregate fluctuations. Econometrica 50(6), 1345–1370.10.2307/1913386CrossRefGoogle Scholar
Le Barbanchon, T., Ourliac, B. and Simon, O. (2011) Les marchés du travail français et américain face aux chocs conjoncturels des années 1986 à 2007: une modélisation DSGE. Document de travail G 2011/01, Direction des Etudes et Synthèses Economiques.10.3406/estat.2012.9740CrossRefGoogle Scholar
Mortensen, D. T. and Pissarides, C. A. (1994) Job creation and job destruction in the theory of unemployment. The Review of Economic Studies 61(3), 397–415.10.2307/2297896CrossRefGoogle Scholar
Mumtaz, H. and Zanetti, F. (2012) Neutral technology shocks and the dynamics of labor input: Results from an agnostic identification. International Economic Review 53(1), 235–254.10.1111/j.1468-2354.2011.00678.xCrossRefGoogle Scholar
Mumtaz, H. and Zanetti, F. (2015) Labor market dynamics: A time-varying analysis. Oxford Bulletin of Economics and Statistics 77(3), 319–338.10.1111/obes.12096CrossRefGoogle Scholar
Ohanian, L. E. and Raffo, A. (2012) Aggregate hours worked in OECD countries: New measurement and implications for business cycles. Journal of Monetary Economics 59(1), 40–56.10.1016/j.jmoneco.2011.11.005CrossRefGoogle Scholar
Pappa, E. (2009) The effects of fiscal shocks on employment and the real wage. International Economic Review 50(1), 217–244.10.1111/j.1468-2354.2008.00528.xCrossRefGoogle Scholar
Peersman, G. (2005) What caused the early millennium slowdown? Evidence based on vector autoregressions. Journal of Applied Econometrics 20(2), 185–207.10.1002/jae.832CrossRefGoogle Scholar
Peersman, G. and Straub, R. (2009) Technology shocks and robust sign restrictions in a euro Area SVAR. International Economic Review 50(3), 727–750.10.1111/j.1468-2354.2009.00546.xCrossRefGoogle Scholar
Petrongolo, B. and Pissarides, C. A. (2001) Looking into the black box: A survey of the matching function. Journal of Economic Literature 39(2), 390–431.10.1257/jel.39.2.390CrossRefGoogle Scholar
Pizzinelli, C., Theodoridis, K. and Zanetti, F. (2018) State Dependence in Labor Market Fluctuations: Evidence, Theory and Policy Implication. Working Paper.Google Scholar
Pizzo, A. (2017) Recruiting Costs and the Elasticity of Tightness: A Comment. Working paper, Universidad de Chile.Google Scholar
Rahn, D. and Weber, E. (2017) Patterns of unemployment dynamics in Germany. Macroeconomic Dynamics 23(1), 1–36.Google Scholar
Shimer, R. (2005) The cyclical behavior of equilibrium unemployment and vacancies. American Economic Review 95(1), 25–49.10.1257/0002828053828572CrossRefGoogle Scholar
Shimer, R. (2012) Reassessing the ins and outs of unemployment. Review of Economic Dynamics 15(2), 127–148.10.1016/j.red.2012.02.001CrossRefGoogle Scholar
Smets, F. and Wouters, R. (2005) Comparing shocks and frictions in US and euro area business cycles: A Bayesian DSGE approach. Journal of Applied Econometrics 20(2), 161–183.10.1002/jae.834CrossRefGoogle Scholar
Thomas, C. (2011) Search frictions, real rigidities, and inflation dynamics. Journal of Money, Credit and Banking 43(6), 1131–1164.10.1111/j.1538-4616.2011.00420.xCrossRefGoogle Scholar
Thomas, C. and Zanetti, F. (2009) Labor market reform and price stability: An application to the euro area. Journal of Monetary Economics 56(6), 885–899.10.1016/j.jmoneco.2009.06.002CrossRefGoogle Scholar
Trigari, A. (2009) Equilibrium unemployment, job flows, and inflation dynamics. Journal of Money, Credit and Banking 41(1), 1–33.10.1111/j.1538-4616.2008.00185.xCrossRefGoogle Scholar
Uhlig, H. (2005) What are the effects of monetary policy on output? Results from an agnostic identification procedure. Journal of Monetary Economics 52(2), 381–419.10.1016/j.jmoneco.2004.05.007CrossRefGoogle Scholar
Walsh, C. E. (2005) Labor market search, sticky prices, and interest rate policies. Review of Economic Dynamics 8(4), 829–849.10.1016/j.red.2005.03.004CrossRefGoogle Scholar
Zanetti, F. (2011) Labor market institutions and aggregate fluctuations in a search and matching model. European Economic Review 55(5), 644–658.10.1016/j.euroecorev.2010.10.001CrossRefGoogle Scholar
Zanetti, F. (2017) Financial shocks, job destruction shocks, and labor market fluctuations. Macroeconomic Dynamics 23(3), 1–29.Google Scholar