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Exogenous vs. endogenous separation

Author

Listed:
  • Shigeru Fujita
  • Garey Ramey

Abstract

This paper assesses how various approaches to modeling the separation margin affect the ability of the Mortensen-Pissarides job matching model to explain key facts about the aggregate labor market. Allowing for realistic time variation in the separation rate, whether exogenous or endogenous, greatly increases the unemployment variability generated by the model. Specifications with exogenous separation rates, whether constant or time-varying, fail to produce realistic volatility and productivity responsiveness of the separation rate and worker flows. Specifications with endogenous separation rates, on the other hand, succeed along these dimensions. In addition, the endogenous separation model with on-the-job search yields a realistic Beveridge curve correlation and performs well in accounting for the productivity responsiveness of market tightness. While adopting the Hagedorn-Manovskii calibration approach improves the behavior of the job finding rate, the volume of job-to-job transitions in the on-the-job search specification becomes essentially zero.

Suggested Citation

  • Shigeru Fujita & Garey Ramey, 2012. "Exogenous vs. endogenous separation," Working Papers 12-2, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:12-2
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    File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers/2012/wp12-2R.pdf
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    References listed on IDEAS

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    1. Shigeru Fujita & Garey Ramey, 2006. "The cyclicality of job loss and hiring," Working Papers 06-17, Federal Reserve Bank of Philadelphia.
    2. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
    3. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 468-510.
    4. 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.
    5. George A. Slotsve & James M. Nason, 2003. "Along the New Keynesian Phillips Curve with Nominal and Real Rigidities," Computing in Economics and Finance 2003 270, Society for Computational Economics.
    6. Yashiv, Eran, 2006. "Evaluating the performance of the search and matching model," European Economic Review, Elsevier, vol. 50(4), pages 909-936, May.
    7. Moscarini, Giuseppe & Thomsson, Kaj, 2006. "Occupational and Job Mobility in the US," Working Papers 19, Yale University, Department of Economics.
    8. 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.
    9. Shigeru Fujita, 2011. "Dynamics of worker flows and vacancies: evidence from the sign restriction approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(1), pages 89-121, January/F.
    10. Murat Tasci, 2006. "On-the-Job Search and Labor Market Reallocation," 2006 Meeting Papers 333, Society for Economic Dynamics.
    11. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    12. Barnichon, Regis, 2010. "Building a composite Help-Wanted Index," Economics Letters, Elsevier, vol. 109(3), pages 175-178, December.
    13. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
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    Citations

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    Cited by:

    1. Chassamboulli, Andri, 2013. "Labor-market volatility in a matching model with worker heterogeneity and endogenous separations," Labour Economics, Elsevier, vol. 24(C), pages 217-229.
    2. Ludo Visschers & Carlos Carrillo-Tudela, 2011. "Unemployment and Endogenous Reallocation over the Business Cycle," 2011 Meeting Papers 1101, Society for Economic Dynamics.
    3. Regis Barnichon & Christopher J. Nekarda, 2012. "The Ins and Outs of Forecasting Unemployment: Using Labor Force Flows to Forecast the Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 83-131.
    4. Barnichon, Regis & Garda, Paula, 2016. "Forecasting unemployment across countries: The ins and outs," European Economic Review, Elsevier, vol. 84(C), pages 165-183.
    5. Reuben Ellul, 2018. "Forecasting unemployment rates in Malta: A labour market flows approach," CBM Working Papers WP/03/2018, Central Bank of Malta.

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    Keywords

    Job hunting ; Unemployment;

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