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The Dynamic Beveridge Curve

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  • Shigeru Fujita

    ()
    (Research Department Federal Reserve Bank of Philadelphia)

  • Garey Ramey

Abstract

In aggregate U.S. data, exogenous shocks to labor productivity induce highly persistent and hump-shaped responses to both the vacancy-unemployment ratio and employment. We show that the standard version of the Mortensen-Pissarides matching model fails to replicate this dynamic pattern due to the rapid responses of new job openings. We extend the model by introducing a sunk cost for creating job positions, motivated by the well-known fact that worker turnover exceeds job turnover. In the matching model with sunk costs, new job openings react sluggishly to shocks, leading to highly realistic dynamics

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File URL: http://repec.org/sed2006/up.27404.1139421182.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 239.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:239

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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Keywords: Unemployment; Vacancies; Labor Adjustment; Matching;

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