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The Ins and Outs of Unemployment: An Analysis Conditional on Technology Shocks


  •  Corresponding author: Claudio Michelacci, CEMFI, Casado del Alisal 5, 28014, Madrid, Spain. Email:

  • We thank Andrew Scott (the Editor), four anonymous referees, Marios Angeletos, Roc Armenter, Robert Barro, Olivier Blanchard, Jesus Fernandez-Villaverde, Robert Hall, Jim Nason, Ivan Werning, Tao Zha and participants of numerous seminars and conferences for comments and suggestions. We also thank Jason Cummins, Gianluca Violante, Robert Shimer, Pau Rabanal, Sergio Rebelo, Gary Solon and Ryan Michaels for kindly making their data available to us. The opinions expressed here are solely those of the authors and do not necessarily reflect the views of the Board of Governors of the Federal Reserve System or of anyone else associated with the Federal Reserve System. Canova acknowledges the financial support of the BGSE and of the Spanish Ministry of Science and Technology (grant ECO2009-08556). Claudio Michelacci acknowledges the financial support of the European Research Council (ERC Advanced Grant 293692). Previous versions of the paper have circulated under the title ‘The ins and out of unemployment: a conditional analysis’ and ‘Schumpeterian Technology Shocks’.


We analyse how unemployment, job-finding and job-separation rates react to neutral and investment-specific technology shocks. Neutral shocks increase unemployment and explain a substantial portion of it volatility; investment-specific shocks expand employment and hours worked and contribute to hours worked volatility. Movements in the job-separation rates are responsible for the impact response of unemployment while job-finding rates for movements along its adjustment path. The evidence warns against using models with exogenous separation rates and challenges the conventional way of modelling technology shocks in search and sticky price models.