No SDES-2016-8
Title Uncertainty shocks and labor market dynamics in Japan
Author Hiroaki Miyamoto
Abstract This paper examines the effects of uncertainty shocks on Japan’s labor market. Using a measure of uncertainty from the stock market data and a structural VAR model, I find that an increase in uncertainty leads to a rise in unemployment and declines in output, vacancies, and inflation. I then develop a dynamic general equilibrium model with labor market frictions and examine the transmission mechanism of uncertainty shocks. In the model, uncertainty shocks are defined as unexpected increases in the volatility of technology shock. My model can replicate the observed pattern of labor market responses to uncertainty shocks. I also discuss how the job separation channel influences the macroeconomic effect of uncertainty shocks.
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