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Exogenous vs. Endogenous Separation

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  • Garey Ramey

    (UC San Diego)

Abstract

This paper assesses how various approaches to modelling 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 or productivity comovement 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. All of the specifications generate insufficient volatility of the job finding rate, vacancies and market tightness when calibrated in a standard manner. The latter deficiencies are remedied when the Hagedorn-Manovskii calibration is used, and the on-the-job search model, in particular, performs well along nearly all dimensions considered.

Suggested Citation

  • Garey Ramey, 2008. "Exogenous vs. Endogenous Separation," 2008 Meeting Papers 466, Society for Economic Dynamics.
  • Handle: RePEc:red:sed008:466
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    File URL: https://economicdynamics.org/meetpapers/2008/paper_466.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Wesselbaum, Dennis, 2011. "Sector-specific productivity shocks in a matching model," Economic Modelling, Elsevier, vol. 28(6), pages 2674-2682.
    2. 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.
    3. Michael W. L. Elsby & Bart Hobijn & Ayşegül Şahin, 2013. "Unemployment Dynamics in the OECD," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 530-548, May.
    4. Beauchemin, Kenneth & Tasci, Murat, 2014. "Diagnosing Labor Market Search Models: A Multiple-Shock Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 18(3), pages 548-572, April.
    5. Steven J. Davis & Till Von Wachter, 2011. "Recessions and the Costs of Job Loss," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 1-72.
    6. van Roye, Björn & Wesselbaum, Dennis, 2009. "Capital, endogenous separations, and the business cycle," Kiel Working Papers 1561, Kiel Institute for the World Economy (IfW).
    7. Dennis Wesselbaum, 2015. "Firing costs in a business cycle model with endogenous separations," Journal of Economic Studies, Emerald Group Publishing, vol. 42(3), pages 499-518, August.
    8. Moritz Kuhn & Philip Jung, 2010. "Labor market rigidity and the transmission of business cycle shocks," 2010 Meeting Papers 595, Society for Economic Dynamics.
    9. Wesselbaum, Dennis, 2009. "Firing costs in a New Keynesian model with endogenous separations," Kiel Working Papers 1550, Kiel Institute for the World Economy (IfW).
    10. Fujita, Shigeru, 2011. "Declining labor turnover and turbulence," Working Papers 11-44, Federal Reserve Bank of Philadelphia.

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