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Reassessing the Shimer facts

  • Shigeru Fujita
  • Garey Ramey

In a recent influential paper, Shimer uses CPS duration and gross flow data to draw two conclusions: (1) separation rates are nearly acyclic; and (2) separation rates contribute little to the variability of unemployment. In this paper the authors assert that Shimer's analysis is problematic, for two reasons: (1) cyclicality is not evaluated systematically; and (2) the measured contributions to unemployment variability do not actually decompose total unemployment variability. The authors address these problems by applying a standard statistical measure of business cycle comovement, and constructing a precise decomposition of unemployment variability. Their results disconfirm Shimer's conclusions. More specifically, separation rates are highly countercyclical under various business cycle measures and filtering methods. The authors also find that fluctuations in separation rates make a substantial contribution to overall unemployment variability.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 07-2.

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Date of creation: 2007
Date of revision:
Handle: RePEc:fip:fedpwp:07-2
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  1. Julio J. Rotemberg, 2006. "Cyclical wages in a search-and-bargaining model with large firms," Proceedings, Federal Reserve Bank of San Francisco.
  2. Michael W. Elsby & Ryan Michaels & Gary Solon, 2007. "The Ins and Outs of Cyclical Unemployment," NBER Working Papers 12853, National Bureau of Economic Research, Inc.
  3. Mark Gertler & Antonella Trigari, 2006. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Computing in Economics and Finance 2006 525, Society for Computational Economics.
  4. Michael Reiter & Christian Haefke, 2006. "Endogenous Labor Market Participation and the Business Cycle," Working Papers 202, Barcelona Graduate School of Economics.
  5. Robert E. Hall, 2005. "Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years," NBER Working Papers 11678, National Bureau of Economic Research, Inc.
  6. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
  7. Ben-David Nissim, 2005. "The separation rate cannot be exogenous," Applied Economics Letters, Taylor & Francis Journals, vol. 12(15), pages 949-951.
  8. King, R.G. & Rebelo, S.T., 1989. "Low Frequency Filtering And Real Business Cycles," RCER Working Papers 205, University of Rochester - Center for Economic Research (RCER).
  9. Shigeru Fujita & Garey Ramey, 2006. "The cyclicality of job loss and hiring," Working Papers 06-17, Federal Reserve Bank of Philadelphia.
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