What if you were German? – DSGE approach to the Great Recession on labour markets

In this paper we utilize an open economy DSGE model to analyse factors behind the Great Recession and its transmission into labour markets of selected Southern European countries. We introduce a number of shocks which form potential sources of macroeconomic disturbances, in particular: foreign demand, productivity, bargaining power, labour demand, labour supply, government spending, and job destruction shocks. Using quarterly data for the 1995-2013 period, we estimate the model for Germany, Greece, Italy, Portugal and Spain. We identify shocks determining macroeconomic and labour market fluctuations in each of the countries studied. We also conduct experiments allowing us to assess to what extent differences between countries with regard to macroeconomic and labour market fluctuations resulted from different shocks affecting them, and to what extent from different resilience of particular economies.