Norges Bank

Working Paper

Mismatch shocks and unemployment during the Great Recession

Francesco Furlanetto and Nicolas Groshenny
Working Paper

We investigate the macroeconomic consequences of fluctuations in the effectiveness of the labor-market matching process with a focus on the Great Recession. We conduct our analysis in the context of an estimated medium-scale DSGE model with sticky prices and equilibrium search unemployment that features a shock to the matching efficiency (or mismatch shock). We find that this shock is almost irrelevant for  unemployment  fluctuations in normal times. However, it plays a somewhat larger role during the Great Recession when it contributes to raise the actual unemployment rate by 1.25 percentage points and the natural rate by 2 percentage points. Moreover, it is the only shock that generates a positive conditional correlation between unemployment and vacancies.

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ISSN 1502-8190 (online)

Published 28 June 2013 10:30
Published 28 June 2013 10:30