Matching Models Under Scrutiny : Understanding the Shimer Puzzle
Two papers have recently questioned the quantitative consistency of the search and matching models. Shimer (2005) has argued that a text-book matching model is unable to explain the cyclical variation of unemployment and vacancies in the U.S. economy. Costain and Reiter (2007) have found the existence of a trade-off in the modelâ€™s performance : any attempt to change the calibrated values in order to amend such business cycle inability would jeopardize the modelâ€™s predictions about the impact of unemployment benefits on the hazard rate. In surveying the literature originated in these findings, I distinguish three different avenues that have been followed to corret the model : change in wage formation, change in the calibration, changes in the model specification. The last approach seems to reach the best results both from a business cycle and from a microeconomic viewpoint.
|Date of creation:||01 Apr 2008|
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