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The Dynamic Beveridge Curve

Author

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  • Shigeru Fujita

    () (Research Department Federal Reserve Bank of Philadelphia)

  • Garey Ramey

Abstract

In aggregate U.S. data, exogenous shocks to labor productivity induce highly persistent and hump-shaped responses to both the vacancy-unemployment ratio and employment. We show that the standard version of the Mortensen-Pissarides matching model fails to replicate this dynamic pattern due to the rapid responses of new job openings. We extend the model by introducing a sunk cost for creating job positions, motivated by the well-known fact that worker turnover exceeds job turnover. In the matching model with sunk costs, new job openings react sluggishly to shocks, leading to highly realistic dynamics

Suggested Citation

  • Shigeru Fujita & Garey Ramey, 2006. "The Dynamic Beveridge Curve," 2006 Meeting Papers 239, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:239
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    References listed on IDEAS

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    Cited by:

    1. Vincent Bodart & Gregory de Walque & Olivier Pierrard & Henri R. Sneessens & Raf Wouters, 2006. "Nominal wage rigidities in a new Keynesian model with frictional unemployment," Working Paper Research 97, National Bank of Belgium.
    2. Thomas Lubik & Michael Krause, 2004. "On-the-Job Search and the Cyclical Dynamics of the Labor Market," Economics Working Paper Archive 513, The Johns Hopkins University,Department of Economics.
    3. Günes Kamber & Stephen Millard, 2012. "Using Estimated Models to Assess Nominal and Real Rigidities in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 8(4), pages 97-119, December.
    4. Kai Christoffel & Keith Kuester & Tobias Linzert, 2006. "Identifying the Role of Labor Markets for Monetary Policy in an Estimated DSGE Model," 2006 Meeting Papers 544, Society for Economic Dynamics.
    5. Hertweck Matthias Sebastian, 2013. "Strategic wage bargaining, labor market volatility, and persistence," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-27, October.
    6. Tim Schwarzmüller & Nikolai Stähler, 2013. "Reforming the labor market and improving competitiveness: an analysis for Spain using FiMod," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(4), pages 437-471, November.
    7. Ebell, Monique & Haefke, Christian, 2006. "Product Market Regulation and Endogenous Union Formation," IZA Discussion Papers 2222, Institute for the Study of Labor (IZA).
    8. Russell Cooper & John Haltiwanger & Jonathan L. Willis, 2007. "Implications of Search Frictions: Matching Aggregate and Establishment-level Observations," NBER Working Papers 13115, National Bureau of Economic Research, Inc.
    9. Linzert, Tobias & Christoffel, Kai & Kuester, Keith, 2006. "Identifying the role of labor markets for monetary policy in an estimated DSGE model," Working Paper Series 635, European Central Bank.
    10. Farmer, Roger E A, 2005. "Shooting the Auctioneer," CEPR Discussion Papers 4825, C.E.P.R. Discussion Papers.
    11. Morten O. Ravn & Saverio Simonelli, 2008. "Labor Market Dynamics and the Business Cycle: Structural Evidence for the United States," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 743-777, March.
    12. Robert Shimer, 2007. "Mismatch," American Economic Review, American Economic Association, vol. 97(4), pages 1074-1101, September.
    13. Murat Tasci, 2006. "On-the-Job Search and Labor Market Reallocation," 2006 Meeting Papers 333, Society for Economic Dynamics.
    14. Sabine Klinger & Enzo Weber, 2016. "Decomposing Beveridge Curve Dynamics By Correlated Unobserved Components," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(6), pages 877-894, December.
    15. Wesselbaum, Dennis, 2009. "Firing costs in a New Keynesian model with endogenous separations," Kiel Working Papers 1550, Kiel Institute for the World Economy (IfW).
    16. Krause, Michael U. & Lubik, Thomas A., 2007. "On-the-job search and the cyclical dynamics of the labor market," Working Paper Series 779, European Central Bank.
    17. Kuester, Keith, 2007. "Real price and wage rigidities in a model with matching frictions," Working Paper Series 720, European Central Bank.
    18. Russell W. Cooper & John Haltiwanger & Jonathan L. Willis, 2006. "Hours and employment implications of search frictions: matching aggregate and establishment-level observations," Research Working Paper RWP 06-14, Federal Reserve Bank of Kansas City.
    19. Jung, Philip & Kuhn, Moritz, 2011. "Labor Market Rigidity and Business Cycle Volatility," MPRA Paper 48946, University Library of Munich, Germany.

    More about this item

    Keywords

    Unemployment; Vacancies; Labor Adjustment; Matching;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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