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Dynamic Beveridge Curve Accounting

Author

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  • Hie Joo Ahn
  • Leland Crane

Abstract

We develop a dynamic decomposition of the empirical Beveridge curve, i.e., the level of vacancies conditional on unemployment. Using a standard model, we show that three factors can shift the Beveridge curve: reduced-form matching efficiency, changes in the job separation rate, and out-of-steady-state dynamics. We find that the shift in the Beveridge curve during and after the Great Recession was due to all three factors, and each factor taken separately had a large effect. Comparing the pre-2010 period to the post-2010 period, a fall in matching efficiency and out-of-steady-state dynamics both pushed the curve upward, while the changes in the separations rate pushed the curve downward. The net effect was the observed upward shift in vacancies given unemployment. In previous recessions changes in matching efficiency were relatively unimportant, while dynamics and the separations rate had more impact. Thus, the unusual feature of the Great Recession was the deterioration in matching efficiency, while separations and dynamics have played significant, partially offsetting roles in most downturns. The importance of these latter two margins contrasts with much of the literature, which abstracts from one or both of them. We show that these factors affect the slope of the empirical Beveridge curve, an important quantity in recent welfare analyses estimating the natural rate of unemployment.

Suggested Citation

  • Hie Joo Ahn & Leland Crane, 2020. "Dynamic Beveridge Curve Accounting," Finance and Economics Discussion Series 2020-027, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2020-27
    DOI: 10.17016/FEDS.2020.027
    as

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    File URL: https://www.federalreserve.gov/econres/feds/files/2020027pap.pdf
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    References listed on IDEAS

    as
    1. Pascal Michaillat & Emmanuel Saez, 2019. "Beveridgean Unemployment Gap," Papers 1911.05271, arXiv.org, revised Dec 2020.
    2. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    3. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, September.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Dynamic Beveridge Curve Accounting
      by Christian Zimmermann in NEP-DGE blog on 2020-05-11 13:40:36

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    More about this item

    Keywords

    Beveridge curve; Job separation; Job openings; Natural rate of unemployment; Matching efficiency; Unemployment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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