Bargaining Shocks and Aggregate Fluctuations

113 Pages Posted: 11 Aug 2017 Last revised: 11 Apr 2021

See all articles by Thorsten Drautzburg

Thorsten Drautzburg

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Pablo Guerrón-Quintana

Boston College - Department of Economics

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Date Written: August 2017

Abstract

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.

Suggested Citation

Drautzburg, Thorsten and Fernández-Villaverde, Jesús and Guerrón-Quintana, Pablo, Bargaining Shocks and Aggregate Fluctuations (August 2017). NBER Working Paper No. w23647, Available at SSRN: https://ssrn.com/abstract=3016917

Thorsten Drautzburg (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

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Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Pablo Guerrón-Quintana

Boston College - Department of Economics ( email )

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