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Evaluating the Performance of the Search and Matching Model

  • Yashiv, Eran

    ()

    (Tel Aviv University)

Does the search and matching model fit aggregate U.S. labor market data? While the model has become an important tool of macroeconomic analysis, recent literature pointed to some significant failures in accounting for the data. This paper aims to answer two questions: (i) Does the model fit the data, and, if so, on what dimensions? (ii) Does the data "fit" the model, i.e. what are the data which are relevant to be explained by the model? The analysis shows that the model fits certain specifications of the data on many dimensions, though not on all. This includes capturing the high persistence and high volatility of most of the key variables, the negative co-variation of unemployment and vacancies, and the behavior of the worker job finding rate. A key role in this fit is played by the convexity of hiring costs and the stochastic properties of the separation rate. The latter is a major component of the rate discounting the future value of the job-worker match. The paper offers a workable, empirically-grounded version of the model for the analysis of aggregate U.S. labor market dynamics.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1931.

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Length: 42 pages
Date of creation: Jan 2006
Date of revision:
Publication status: published in: European Economic Review, 2006, 50 (4), 909-936
Handle: RePEc:iza:izadps:dp1931
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  6. Yashiv, E., 1999. "Hiring as Investment Behavior," Papers 35-99, Tel Aviv.
  7. Shigeru Fujita, 2005. "Vacancy Persistence," Computing in Economics and Finance 2005 191, Society for Computational Economics.
  8. Yashiv, Eran, 2005. "Evaluating the Performance of the Search and Matching Model," CEPR Discussion Papers 5363, C.E.P.R. Discussion Papers.
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  36. 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.
  37. Eran Yashiv, 2005. "Forward-Looking Hiring Behavior and the Dynamics of the Aggregate Labor Market," 2005 Meeting Papers 360, Society for Economic Dynamics.
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