Premium
Labor Market and Financial Shocks: A Time‐Varying Analysis
Author(s) -
CORSELLO FRANCESCO,
NISPI LANDI VALERIO
Publication year - 2020
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12638
Subject(s) - shock (circulatory) , economics , unemployment , financial distress , financial market , vector autoregression , financial crisis , monetary economics , finance , financial system , macroeconomics , medicine
We estimate a time‐varying VAR model to analyze the effects of a financial shock on the U.S. labor market. We find that a tightening of financial conditions is highly detrimental to the labor market. We show that while negative financial shocks have been responsible for increases in unemployment, our model does not find significant contributions of financial shocks during periods of expansion. The source of this asymmetry is the time‐varying standard deviation of the identified shock, which is higher in times of financial distress; on the other hand, we find that the transmission mechanism does not significantly change over time.