How does labor market reform contribute to business cycle dynamics? I develop a real business cycle model in which labor market reform affects economic activity by improving employment matching efficiency and reducing vacancy posting costs. I then use shocks to a labor market freedom index (LMFI) to proxy for labor market reform in the United States and calibrate the model under different shock transmission channels to test the empirical relevance of these mechanisms. The impulse response shows that the positive net effect of the LMFI shock on vacancy rate from the structural model with both channels closely fits U.S. data in the VAR model. On the other hand, using OECD data, vacancy rate impulse response shows that the panel VAR analysis supports the vacancy posting cost channel of shock transmission identified in the structural model.

I re-examined the conclusions from Lucas’s (1980) study titled “Two Illustrations of the Quantity Theory of Money” with several changes in mind. First, I considered different measurements of money (Divisia or Fisher-Ideal) to avoid the many measurement problems associated with the Federal Reserve’s published data. Second, I used the 10-year Treasury note to replace a short-term interest rate because the quantity theory is about long-run relationships between nominal magnitudes. Third, I used more recent filtering techniques like the Hamilton and Hodrick-Prescott filter. Finally, I used the GDP deflator for personal consumption expenditures instead of the CPI to eliminate any seasonal effect that may be present in quarterly data. The preliminary results have highlighted that filtered data produce larger estimates than the unfiltered counterpart. Also, Lucas’ proposition can only be established in the early subperiod when I used simple-sum M2 growth. When I used other money measurements in the early subperiod, the filtering technique determined if Lucas’ relationships held.