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The Cyclicality of Search Intensity in a Competitive Search Model

Shimer's puzzle is that the textbook Diamond-Mortensen-Pissarides model exhibits fluctuations in labor market variables that are an order of magnitude too small. Introducing search effort of the unemployed brings the model's predictions for these fluctuations very close to those seen in the data. The search cost function and the matching technology are intimately related and thus should be estimated simultaneously. Ignoring worker search effort leads to a large upward bias in the elasticity of matches with respect to vacancies. Evidence in support of the model's prediction of procyclical search effort is presented.

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Paper provided by Concordia University, Department of Economics in its series Working Papers with number 13002.

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Length: 30 pages
Date of creation: Sep 2013
Date of revision: Sep 2013
Handle: RePEc:crd:wpaper:13002
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  1. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
  2. Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers 460, Society for Economic Dynamics.
  3. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
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  6. Francesco Furlanetto & Nicolas Groshenny, 2013. "Mismatch shocks and unemployment during the Great Recession," Working Paper 2013/16, Norges Bank.
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  8. Galindev, Ragchaasuren & Lkhagvasuren, Damba, 2010. "Discretization of highly persistent correlated AR(1) shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 34(7), pages 1260-1276, July.
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  11. Jeremy Lise, 2013. "On-the-Job Search and Precautionary Savings," Review of Economic Studies, Oxford University Press, vol. 80(3), pages 1086-1113.
  12. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  13. Robert E. Hall & Alan B. Krueger, 2012. "Evidence on the Incidence of Wage Posting, Wage Bargaining, and On-the-Job Search," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 56-67, October.
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  18. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  19. 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.
  20. Kaas Leo, 2010. "Variable Search Intensity with Coordination Unemployment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-33, October.
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  22. Robert E. Hall & Alan B. Krueger, 2010. "Evidence on the Determinants of the Choice between Wage Posting and Wage Bargaining," NBER Working Papers 16033, National Bureau of Economic Research, Inc.
  23. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 1-25.
  24. Lkhagvasuren, Damba, 2012. "Big locational unemployment differences despite high labor mobility," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 798-814.
  25. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  26. Simon Burgess & Helene Turon, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies – A Comment," Bristol Economics Discussion Papers 05/573, Department of Economics, University of Bristol, UK.
  27. Mark Bils & Yongsung Chang & Sun-Bin Kim, 2011. "Worker Heterogeneity and Endogenous Separations in a Matching Model of Unemployment Fluctuations," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 128-54, January.
  28. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  29. Marcelo Veracierto, 2009. "Establishments dynamics, vacancies and unemployment: a neoclassical synthesis," Working Paper Series WP-09-14, Federal Reserve Bank of Chicago.
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