Title page
Contents
Abstract 2
Introduction 3
1. Amodified estimation algorithm for Bayesian sign-restricted VARs 9
1.1. The Baumeister-Hamilton method for estimating sign-restricted VARs 9
1.2. The modified Baumeister-Hamiltonmethod 11
1.3. Computing the impulse responses 14
2. Linking the Beveridge curve and the Phillips curve 15
2.1. The Blanchard and Diamond (1989) model 15
2.2. Two unemployment states with wage and price inflation 17
3. Estimation 20
3.1. Data 20
3.2. Prior specification 21
4. Estimation results 22
4.1. Posterior distributions of structural parameters 23
4.2. Impulse responses 24
4.3. Historical decompositions 28
4.4. Robustness checks 29
5. The labor market during the Covid-19 pandemic 32
6. Discussion 36
6.1. The anatomy of the Beveridge curve 37
6.2. The Beveridge curve during the Covid-19 pandemic 38
6.3. The anatomy of the reduced-formPhillips curve 40
References 46
A. Appendix 50
A.1. Literature review 50
A.2. Modified estimation algorithm 52
A.3. Three-variablemodel 55
A.4. Robustness checks 59
A.5. Phillips correlations fromthe models with alternative restrictions on the impactmatrix 66
Table 1. IDENTIFICATION OF STRUCTURAL SHOCKS IN THE BLANCHARD-DIAMOND MODEL 16
Table 2. IDENTIFICATION OF STRUCTURAL SHOCKS IN THE EXTENDED MODEL 18
Table 3. PRIORS ON PARAMETERS IN THE IMPACT MATRIX 22
Table 4. CUMULATIVE WAGE AND PRICE PHILLIPS CORRELATION BY STRUCTURAL SHOCK 44
Figure 1. PRIOR AND POSTERIOR DISTRIBUTIONS FOR STRUCTURAL PARAMETERS 26
Figure 2. IMPULSE RESPONSES 27
Figure 3. HISTORICAL DECOMPOSITION (1) 30
Figure 4. HISTORICAL DECOMPOSITION (2) 31
Figure 5. HISTORICAL DECOMPOSITION: COVID-19 PANDEMIC 33
Figure 6. THE ANATOMY OF THE BEVERIDGE CURVE (PRE-PANDEMIC) 41
Figure 7. THE ANATOMY OF THE BEVERIDGE CURVE DURING THE PANDEMIC 42
Figure A.1. PRIOR AND POSTERIOR DISTRIBUTIONS FOR STRUCTURAL PARAMETERS: THREE-VARIABLE MODEL 56
Figure A.2. IMPULSE RESPONSES (THREE-VARIABLE VAR) 57
Figure A.3. HISTORICAL DECOMPOSITION: THREE-VARIABLE VAR 58
Figure A.4. IMPULSE RESPONSES WITH AHE AND UNADJUSTED MARKET-BASED CORE INFLATION 60
Figure A.5. HISTORICAL DECOMPOSITION: MODEL WITH UNADJUSTED MARKET-BASED CORE INFLATION (1) 61
Figure A.6. HISTORICAL DECOMPOSITION: MODEL WITH UNADJUSTED MARKET-BASED CORE INFLATION (2) 62
Figure A.7. IMPULSE RESPONSES: NO SIGN RESTRICTIONS ON THE IMPACT EFFECTS OF QUITS REALLOCATION SHOCK ON WAGE AND PRICE INFLATION 63
Figure A.8. HISTORICAL DECOMPOSITION (1): NO SIGN RESTRICTIONS ON THE IMPACT EFFECTS OF QUITS REALLOCATION SHOCK ON WAGE AND PRICE INFLATION 64
Figure A.9. HISTORICAL DECOMPOSITION (2): NO SIGN RESTRICTIONS ON THE IMPACT EFFECTS OF QUITS REALLOCATION SHOCK ON WAGE AND PRICE INFLATION 65
Figure A.10. CUMULATIVE WAGE AND PRICE PHILLIPS CORRELATION BY STRUCTURAL SHOCK 67
Figure A.11. WAGE AND PRICE PHILLIPS CORRELATIONS FOR EACH STRUCTURAL SHOCK USING UNADJUSTED MARKET-BASED CORE INFLATION 68
Figure A.12. WAGE AND PRICE PHILLIPS CORRELATIONS FOR EACH STRUCTURAL SHOCK (NO SIGN RESTRICTIONS ON IMPACT EFFECTS OF QUITS REALLOCATION... 69