Bargaining Shocks and Aggregate Fluctuations

Arbeitspapier

We argue that social and political risk causes significant aggregate fluctuations by changing workers’ bargaining power. Using a Bayesian proxy-VAR estimated with U.S. data, we show how distribution shocks trigger output and unemployment movements. To quantify the aggregate importance of these distribution shocks, we extend an otherwise standard neoclassical growth economy. We model distribution shocks as exogenous changes in workers’ bargaining power in a labor market with search and matching. We calibrate our economy to the U.S. corporate non-financial business sector, and we back out the evolution of workers’ bargaining power. We show how the estimated shocks agree with the historical narrative evidence. We document that bargaining shocks account for 28% of aggregate fluctuations and have a welfare cost of 2.4% in consumption units.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 8989

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications ; Financial Markets and the Macroeconomy ; Demand and Supply of Labor: General
• Subject: distribution risk ; bargaining shocks ; aggregate fluctuations ; partial filter ; historical narrative

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Drautzburg, Thorsten ; Fernández-Villaverde, Jesús ; Guerron-Quintana, Pablo
• Event: Veröffentlichung
• (who): Center for Economic Studies and Ifo Institute (CESifo)
• (where): Munich
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/235359
• Last update: 10.03.2025, 11:45 AM CET