Amid total factor productivity (TFP) shocks job-to-job flows amplify the volatility of
unemployment, but the aggregate implications of job-to-job flows amid financial shocks are less
understood. To develop such understanding we model a general equilibrium labor-search
framework that incorporates on-the-job (OTJ) search and distinctly accounts for the differential
impact of TFP and financial shocks. Surprisingly, we find that the interaction of OTJ search with
financial shocks is sufficiently different from its interaction with TFP shocks so that, under
standard calibrations, our model generates aggregate dynamics exceedingly in line with the
behavior of key U.S. macro data across several decades and in the wake of the Global Financial
Crisis as well. Importantly, as in the data, the model yields relatively high volatilities of
consumption, labor income, and unemployment. As such, our work contributes to resolving two
limitations of current general equilibrium labor-search theory: under standard calibrations models
without OTJ search generate implausibly low unemployment volatility, while models with OTJ
search generate unemployment volatility closer to the data but at the expense of implausibly low
consumption and labor-income volatility.
Add to Cart by clicking price of the language and format you'd like to purchase
Available Languages and Formats
Prices in red indicate formats that are not yet available but are forthcoming.