We identify the main shock driving fluctuations in long‐horizon productivity expectations, consistent with theories of … TFP news. The identified shock induces strong comovement patterns in output, consumption, investment, employment, and … news shock. The model also matches the empirical patterns of vacancies, labor force participation, hours, and job …

employment adjustment implies a key role for labour markets in determining shock propagation. We consider three policy … shock responses whereas employment subsidies weaken them. The tax instruments affect the degree to which the wage absorbs … is initially proportional, increasing progression is beneficial for output and employment and dampens shock responses of …