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A Comment on the Economics of Labor Adjustment: Mind the Gap: Evidence from a Monte Carlo Experiment: Reply

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  • Russell Cooper
  • Jonathan L. Willis

Abstract

This note responds to Christian Bayer (2009). Cooper and Willis (2004), hereafter CW, find the aggregate nonlinearities reported in Ricardo Caballero and Eduardo Engel (1993) and Caballero, Engel, and John Haltiwanger (1997) reflect mismeasurement of the employment gap, not nonlinearities in plant-level adjustment. Bayer concludes the CW result is not robust to alternative aggregate shock processes. We concur, but argue that the nonlinearity created by mismeasurement does not disappear. Instead, it is directly related to the level of the aggregate shock. The CW findings are robust for the natural case of unobserved gaps. (JEL E24, J23)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.5.2267
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 5 (December)
Pages: 2267-76

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:5:p:2267-76

Note: DOI: 10.1257/aer.99.5.2267
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  1. Russell Cooper & Jonathan Willis, 2002. "The cost of labor adjustment : inferences from the gap," Research Working Paper RWP 02-11, Federal Reserve Bank of Kansas City.
  2. Christian Bayer, 2009. "A Comment on the Economics of Labor Adjustment: Mind the Gap: Evidence from a Monte Carlo Experiment," American Economic Review, American Economic Association, vol. 99(5), pages 2258-66, December.
  3. Russell Cooper & Jonathan L. Willis, 2004. "A Comment on the Economics of Labor Adjustment: Mind the Gap," American Economic Review, American Economic Association, vol. 94(4), pages 1223-1237, September.
  4. Russell Cooper & Jonathan L. Willis, 2009. "Mind the (approximation) gap: a robustness analysis," Research Working Paper RWP 09-02, Federal Reserve Bank of Kansas City.
  5. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Microeconomic Adjustment Hazards and Aggregate Dynamics," NBER Working Papers 4090, National Bureau of Economic Research, Inc.
  6. Ricardo J. Caballero & Eduardo M.R.A. Engel & John Haltiwanger, 1995. "Aggregate Employment Dynamics: Building From Microeconomic Evidence," NBER Working Papers 5042, National Bureau of Economic Research, Inc.
  7. Jerome Adda & Russell W. Cooper, 2003. "Dynamic Economics: Quantitative Methods and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012014, January.
  8. Ricardo J. Caballero & Eduardo M.R.A. Engel, 2004. "A Comment on the Economics of Labor Adjustment: Mind the Gap: Reply," American Economic Review, American Economic Association, vol. 94(4), pages 1238-1244, September.
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Cited by:
  1. Christian Bayer, 2009. "A Comment on the Economics of Labor Adjustment: Mind the Gap: Evidence from a Monte Carlo Experiment," American Economic Review, American Economic Association, vol. 99(5), pages 2258-66, December.

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