No. 1179 - Labor market and financial shocks: a time-varying analysis

by Francesco Corsello and Valerio Nispi Landi
June 2018
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This paper studies empirically the effects of unexpected changes in financial conditions on the labor market. The analysis focuses on the United States and covers the period 1973-2016.

The results show that when the economy is hit by negative financial shocks - which historically are not frequent, though severe - unemployment rises considerably, labor market participation falls and wages decrease. Positive financial shocks - historically more frequent but of a smaller size - feature effects with opposite signs, but more modest impact. It follows the importance of policies aimed at preserving financial stability, such as macroprudential policies.

Published in 2020 in: Journal of Money, Credit and Banking, v. 52, 4, pp. 777-801