American Economic Review: Vol. 90 No. 3 (June 2000)


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Job Destruction and Propagation of Shocks

Article Citation

den Haan, Wouter J., Garey Ramey, and Joel Watson. 2000. "Job Destruction and Propagation of Shocks." American Economic Review, 90(3): 482-498.

DOI: 10.1257/aer.90.3.482


This paper considers propagation of aggregate shocks in a dynamic general-equilibrium model with labor-market matching and endogenous job destruction. Cyclical fluctuations in the job-destruction rate magnify the output effects of shocks, as well as making them much more persistent. Interactions between capital adjustment and the job-destruction rate play an important role in generating persistence. Propagation effects are shown to be quantitatively substantial when the model is calibrated using job-flow data. incorporating costly capital adjustment leads to significantly greater propagation.

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den Haan, Wouter J. (U CA, San Diego and NBER)
Ramey, Garey (U CA, San Diego)
Watson, Joel (U CA, San Diego)

JEL Classifications

E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E32: Business Fluctuations; Cycles

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