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Capital, Endogenous Separations, and the Business Cycle

  • Björn van Roye
  • Dennis Wesselbaum

We implement capital in an endogenous separations New Keynesian matching model. In contrast to the vintage capital theory, we suggest a more general approach, such that workers have unrestricted access to a proportional share of the capital stock. We find that the introduction of capital generates an important channel for the transmission of aggregate productivity shocks, using capital-labor trade-off. The model generates higher volatilities of key variables and therefore enhances the performance of the matching model to generate stylized facts in response to an aggregate productivity shock. However, there is almost no difference for monetary policy shocks

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File URL: https://www.ifw-members.ifw-kiel.de/publications/capital-endogenous-separations-and-the-business-cycle/kwp-1561.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1561.

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Length: 25 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:kie:kieliw:1561
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  4. Harold L. Cole & Richard Rogerson, 1996. "Can the Mortonson-Pissarides matching model match the business cycle facts?," Staff Report 224, Federal Reserve Bank of Minneapolis.
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  12. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
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  17. Ramey, Garey, 2008. "Exogenous vs. Endogenous Separation," University of California at San Diego, Economics Working Paper Series qt0qb196qd, Department of Economics, UC San Diego.
  18. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 0853, European Central Bank.
  19. Barnichon, Regis, 2012. "Vacancy posting, job separation and unemployment fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 36(3), pages 315-330.
  20. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 19-50.
  21. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
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  23. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  24. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  25. 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.
  26. Burcu Eyigungor, 2008. "Specific capital and vintage effects on the dynamics of unemployment and vacancies," Working Papers 08-6, Federal Reserve Bank of Philadelphia.
  27. Shigeru Fujita & Garey Ramey, 2007. "Reassessing the Shimer facts," Working Papers 07-2, Federal Reserve Bank of Philadelphia.
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