AbstractA search and matching model, when calibrated to the mean and volatility of unemployment in the postwar sample, can potentially explain the large unemployment dynamics in the Great Depression. The congestion externality induced by matching frictions causes the unemployment rate to increase sharply in recessions but to decline gradually in booms. The frequency, severity, and persistence of unemployment crises in the model are consistent with U.S. historical time series. An accurate global solution is critical for deriving the nonlinear dynamics. Loglinearization understates the mean and volatility of unemployment, overstates the unemployment-vacancy correlation, and overlooks impulse responses that are an order of magnitude larger in recessions than in booms.
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Bibliographic InfoPaper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2013-E5.
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Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/
Other versions of this item:
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G01 - Financial Economics - - General - - - Financial Crises
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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