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Japan's Labor Market Cyclicality and the Volatility Puzzle

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Author Info

  • Julen ESTEBAN-PRETEL
  • NAKAJIMA Ryo
  • TANAKA Ryuichi

Abstract

The search and matching model has recently come under criticism for its inability to account for some of the cyclical properties of the U.S. labor market. Shimer (2005) has shown that the basic version of the model is incapable of reproducing the volatility of the market tightness for reasonable movements in productivity. This paper considers whether the so-called "Shimer Puzzle" also holds for the Japanese economy. We present empirical evidence on the cyclical properties of the labor market variables in Japan and compare these to their U.S. counterparts. We then build, parametrize, and simulate three different versions of the search and matching model (with exogenous job destruction, with endogenous job destruction, and embedded in a Real Business Cycle model) and compare the simulated statistics to the data. We find that the "Shimer Puzzle" does hold for Japan, since the model is unable to generate as much volatility on the market tightness as in the data.

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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 11040.

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Length: 30 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:eti:dpaper:11040

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  1. Julen ESTEBAN-PRETEL & NAKAJIMA Ryo & TANAKA Ryuichi, 2009. "TFP Growth Slowdown and the Japanese Labor Market in the 1990s," Discussion papers 09003, Research Institute of Economy, Trade and Industry (RIETI).
  2. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October.
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Cited by:
  1. Pedro S. Amaral & Murat Tasci, 2012. "The cyclical behavior of equilibrium unemployment and vacancies across OECD countries," Working Paper 1236, Federal Reserve Bank of Cleveland.
  2. Ching-Yang Lin & Hiroaki Miyamoto, 2013. "Estimating a Search and Matching Model of the Ag-gregate Labor Market in Japan," Working Papers EMS_2013_09, Research Institute, International University of Japan.
  3. Esteban-Pretel, Julen & Fujimoto, Junichi, 2012. "Life-cycle search, match quality and Japan’s labor market," Journal of the Japanese and International Economies, Elsevier, vol. 26(3), pages 326-350.
  4. Ching-Yang Lin & Hiroaki Miyamoto, 2014. "An Estimated Search and Matching Model of the Japanese Labor Market," Working Papers EMS_2014_02, Research Institute, International University of Japan.

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