Conditional Patterns of Unemployment Dynamics in Germany

This paper studies the conditional patterns of unemployment dynamics in Germany. We employ a structural VAR model and identify a technology shock and two policy shocks by using standard restrictions. Interestingly, the worker reallocation process varies substantially with the identified shocks. The job finding rate plays a larger role after a technology shock and a monetary policy shock, while the separation rate appears as the dominant margin after a fiscal policy shock. Technology shocks are relatively important for variations in the transition rates, though they do not seem to trigger the high volatilities on the German labor market. Considering policy shocks, our results point towards fiscal innovations as a promising tool, but with several limitations.