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Estimating a search and matching model of the aggregate labor market

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  • Thomas A. Lubik

Abstract

The search and matching model of the labor market has become the workhorse for analyzing unemployment dynamics and the business cycle transmission mechanism. However, many quantitative studies of the search and matching framework argue that it is unable to replicate key labor market facts. These studies typically rely on a wide range of calibrated parameter values for which independent information is difficult to obtain. In this article, I specify and estimate a simple version of the search and matching framework using Bayesian methods. I show that the model has extremely weak internal propagation and that labor dynamics are explained almost exclusively by shocks that are residuals in the respective equations. Moreover, the structural parameter estimates appear to be only weakly identified and can change considerably across minor specification changes. This suggests that the search and matching model may not be a good framework for explaining business cycle fluctuations in the labor market.

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Bibliographic Info

Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

Volume (Year): (2009)
Issue (Month): Spr ()
Pages: 101-120

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Handle: RePEc:fip:fedreq:y:2009:i:spr:p:101-120:n:v.95no.2

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Related research

Keywords: Labor market ; Business cycles;

References

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  1. Luca Sala & Antonella Trigari & Mark Gertler, 2007. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," 2007 Meeting Papers 353, Society for Economic Dynamics.
  2. Michael U. Krause & Thomas A. Lubik & David López-Salido, 2008. "Inflation dynamics with search frictions : a structural econometric analysis," Working Paper 08-01, Federal Reserve Bank of Richmond.
  3. Marcus Hagedorn & Iourii Manovskii, 2007. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," IEW - Working Papers 351, Institute for Empirical Research in Economics - University of Zurich.
  4. Thomas Lubik & Frank Schorfheide, 2005. "A Bayesian Look at New Open Economy Macroeconomics," Economics Working Paper Archive 521, The Johns Hopkins University,Department of Economics.
  5. Robert E. Hall, 1997. "Macroeconomic Fluctuations and the Allocation of Time," NBER Working Papers 5933, National Bureau of Economic Research, Inc.
  6. Sungbae An & Frank Schorfheide, 2006. "Bayesian analysis of DSGE models," Working Papers 06-5, Federal Reserve Bank of Philadelphia.
  7. Kai Christoffel & Keith Kuester & Tobias Linzert, 2006. "Identifying the Role of Labor Markets for Monetary Policy in an Estimated DSGE Model," 2006 Meeting Papers 544, Society for Economic Dynamics.
  8. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  9. Julio J. Rotemberg, 2006. "Cyclical wages in a search and bargaining model with large firms," Working Papers 06-5, Federal Reserve Bank of Boston.
  10. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 19-50.
  11. Antonella Trigari, 2006. "The Role of Search Frictions and Bargaining for Inflation Dynamics," Working Papers 304, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  12. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
  13. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  14. Antonella Trigari, 2009. "Equilibrium Unemployment, Job Flows, and Inflation Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 1-33, 02.
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Cited by:
  1. Anton A. Cheremukhin & Paulina Restrepo-Echavarria, 2010. "The labor wedge as a matching friction," Working Papers 1004, Federal Reserve Bank of Dallas.
  2. Kato, Ryuta Ray & Miyamoto, Hiroaki, 2013. "Fiscal stimulus and labor market dynamics in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 30(C), pages 33-58.
  3. Krause, Michael & Lubik, Thomas A., 2010. "Instability and indeterminacy in a simple search and matching model," Discussion Paper Series 1: Economic Studies 2010,25, Deutsche Bundesbank, Research Centre.
  4. Lin, Ching-Yang & Miyamoto, Hiroaki, 2014. "An estimated search and matching model of the Japanese labor market," Journal of the Japanese and International Economies, Elsevier, vol. 32(C), pages 86-104.

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