Essays on the effects of oil price shocks and monetary shocks on labor reallocation

Abstract

The debate regarding the asymmetric effects associated with oil and monetary shocks on the economy has revived interest in analyzing the channels of transmission that generate asymmetries in the response of economic activity to these shocks. This dissertation examines the role of the allocative channel in the transmission mechanism of oil shocks and monetary shocks on economic activity. Using methods by Kilian and Vigfusson (2011b), we analyze the impact of oil and monetary shocks on job creation and job destruction in manufacturing industries.

We found that an unanticipated positive oil price shock triggers costly reallocation of labor across sectors and regions. Yet, no evidence of asymmetry was found in the response of job creation (job destruction) to positive and negative oil price shocks. Moreover, we found significant evidence of asymmetries in the response of job creation and job destruction to a positive monetary shock. This finding indicates that there is a significant costly labor reallocation process associated with an unanticipated increase in interest rates. Finally we inquire on whether the reduction in the effect of shocks since the Great moderation could be explained with the decline in the role of the allocative channel. We found that the effect of both oil price shocks and monetary shocks on Labor reallocation has reduced since the start of the Great Moderation.