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Labor Market Fluctuations in the Small and in the Large

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  • Richard Rogerson
  • Lodewijk P. Visschers
  • Randall Wright

Abstract

Shimer's calibrated version of the Mortensen-Pissarides model generates unemployment fluctuates much smaller than the data. Hagedorn and Manovskii present an alternative calibration that yields fluctuations consistent with the data, but this has been challenged by Costain and Reiter, who say it generates unrealistically big differences in unemployment from the differences in policy we sees across countries. We argue this concern may be unwarranted, because one cannot assume elasticities relevant for small changes work for large changes. Models with fixed factors in market or household production can generate large effects from small changes and reasonable effects from large changes. This is reminiscent of attempts to improve the labor market in the Kydland-Prescott model, especially ones incorporating household production, like Benhabib, Rogerson and Wright.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13872.

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Date of creation: Mar 2008
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Publication status: published as Richard Rogerson & Lodewijk P. Visschers & Randall Wright, 2009. "Labor market fluctuations in the small and in the large," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(1), pages 125-137.
Handle: RePEc:nbr:nberwo:13872

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  1. Roger E. A. Farmer, 2005. "Shooting the Auctioneer," 2005 Meeting Papers, Society for Economic Dynamics 26, Society for Economic Dynamics.
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  3. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1692-1706, September.
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  10. Rupert, Peter & Rogerson, Richard & Wright, Randall, 1995. "Estimating Substitution Elasticities in Household Production Models," Economic Theory, Springer, Springer, vol. 6(1), pages 179-93, June.
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  13. McGrattan, Ellen R & Rogerson, Richard & Wright, Randall, 1997. "An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 267-90, May.
  14. Stephen L. Parente & Richard Rogerson & Randall Wright, 2000. "Homework in Development Economics: Household Production and the Wealth of Nations," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(4), pages 680-687, August.
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  22. Paul Gomme & Richard Rogerson & Peter Rupert & Randall Wright, 2004. "The business cycle and the life cycle," Working Paper, Federal Reserve Bank of Cleveland 0404, Federal Reserve Bank of Cleveland.
  23. Ellen R. McGrattan, 1991. "The macroeconomic effects of distortionary taxation," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 37, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Randall Wright & Guido Menzio & Aleksander Berentsen, 2008. "Inflation and Unemployment in the Long Run," 2008 Meeting Papers 34, Society for Economic Dynamics.
  2. Lkhagvasuren, Damba, 2012. "Big locational unemployment differences despite high labor mobility," Journal of Monetary Economics, Elsevier, Elsevier, vol. 59(8), pages 798-814.
  3. Damba Lkhagvasuren & Roy Nitulescu, 2013. "Sectoral Mobility and Unemployment with Heterogeneous Moving Costs," Journal of Labor Research, Springer, Springer, vol. 34(3), pages 339-358, September.
  4. Damba Lkhagvasuren, 2005. "Big Locational Differences in Unemployment Despite High Labor Mobility," Working Papers, Concordia University, Department of Economics 12002, Concordia University, Department of Economics, revised Feb 2012.

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