Essays on Labour Market Fluctuations

This thesis consists of three chapters. In the first chapter, I study the long-run effect of financial shocks on labour market fluctuations. I propose a DSGE model where firms and households interact in a frictional financial and labour market. The results show that financial shocks have significant effects on extensive and intensive labour margin, unemployment, vacancy, and firm's flows of financing during the last three recessions: 1990-91, 2001, and 2008. These results rely on the period till the end of the 2008 financial crisis consistent with the literature. I extend the analysis by including the 2008 post crises period. The results suggest that even though the model can capture downturns and recoveries in 1990-91, 2001, and 2008, the model simulations cannot capture the vacancy-unemployment relationship implying that other factors have affected the Beveridge curve aftermath of the 2008 financial crisis. The second chapter shows that labour force participation and search intensity are quantitatively important for the unemployment dynamics. I estimate a search and matching model that incorporates endogenous labour force participation and variable search intensity. Business cycle fluctuations are driven by shocks to productivity and discount factor. The results suggest that participation and aggregate search intensity are procyclical, and search intensity amplifies the response of unemployment. Fluctuation in unemployment is higher than a standard search model, and discount factor shocks significantly affect labour market dynamics. The third chapter shows how uncertainty affects search intensity, participation, and unemployment dynamics. I obtain perceived uncertainty measure and construct search intensity data to match the key features of a medium-scale DSGE model. I find that uncertainty gives rise to a discouragement effect. Thus, labour force participation and search intensity decline during increased uncertainty in addition to the increase in unemployment. The model suggests that the presence of nominal rigidities reinforces the fluctuations in the labour market. Labour force participation increases only due to habit formation, which gives rise to the wealth effect. However, an increase in participation does not increase aggregate search intensity since unemployment is higher in this case.