Zhao, N., Shi, Y. , Sun, Y. and Miao, J. (2020) Aggregate labor market fluctuations under news shocks. Economic Modelling, 90, pp. 397-405. (doi: 10.1016/j.econmod.2019.12.018)
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Abstract
The standard RBC model fails to replicate the relationship between aggregate hours worked and average productivity. We propose a DSGE model that incorporates habit formation preferences, capital adjustment costs, and news shocks to solve the puzzle implied in the standard RBC model with only technological shocks. The aggregate labor supply curve is shifted due to the wealth effect caused by the variation of consumption under a news shock. Moreover, capital adjustment costs help amplify the variation of consumption, and thus the movement of the aggregate labor supply curve under the news shock. Also, the aggregate demand curve will be shifted, as it operates in the standard RBC model after the realization of the news shock. As a result of the joint movement of the aggregate labor supply curve and aggregate labor demand curve under the news shock, the model achieves a relationship quite close to the empirically observed relationship.
| Item Type: | Articles |
|---|---|
| Additional Information: | Dr. Yukun Shi would like to acknowledge the financial support provided by Zhejiang Provincial Natural Science Foundation of China (Grant No: LZ20G010002). |
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Shi, Dr Yukun |
| Authors: | Zhao, N., Shi, Y., Sun, Y., and Miao, J. |
| College/School: | College of Social Sciences > Adam Smith Business School > Accounting and Finance |
| Journal Name: | Economic Modelling |
| Publisher: | Elsevier |
| ISSN: | 0264-9993 |
| ISSN (Online): | 1873-6122 |
| Published Online: | 02 January 2020 |
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