Abstract
A VAR-GARCH-M model for aggregate employment and employment shares isdeveloped to explore the macroeconomic effects of sectoral shocks. Using U.S.,U.K. and German data, three main issues are investigated: the relevance ofshocks volatility; the amount of aggregate employment growth variationaccounted for by re-allocation shocks and the amount of aggregate innovation volatility explained by sectoral components. Bayesian methods are used for estimation model selection and innovation accounting – Bayes factors for model selection and MCMC for estimation. The results favor the VAR-GARCH-M model. A significant GARCH-M component indicates the presence of volatility clustering and the feedback of volatilities on aggregate employment and sectoral shares growth rates. The innovation analysis supports sectoral shocks as a triggering force for aggregate employment fluctuations. In all three countries, 45% to 55% ofaggregate employment variation is accounted for by sectoral innovations.
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Pelloni, G., Polasek, W. Macroeconomic Effects of Sectoral Shocks in Germany, The U.K. and, The U.S. A VAR-GARCH-M Approach. Computational Economics 21, 65–85 (2003). https://doi.org/10.1023/A:1022238914245
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DOI: https://doi.org/10.1023/A:1022238914245