Impact of labour market shocks on business cycle fluctuations in Poland

This paper investigates whether labour market shocks contribute to business cycle fluctuations in Poland. To assess the impact of labour market disturbances, we develop an international real business cycle model with non-Walrasian labour market in the spirit of Diamond, Mortensen and Pissarides. To fit the model to the data, we use Bayesian techniques to estimate selected model parameters and shock properties. We find that hiring cost and job destruction rate disturbances were non-negligible factors affecting both output and consumption variability in the period of 1995 Q1 ? 2013 Q3. Shock to the workers’ bargaining power turns out to have almost no impact on evolution of these two macro variables. Moreover, our results show the condition derived by Hosios (1990) is nearly satisfied, i.e. the degree of inefficiency resulting from the search process decentralization is very small.