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The Dynamic Beveridge Curve

  • Shigeru Fujita

    (Federal Reserve Bank of Philadelphia)

  • Garey Ramey

    (University of California, San Diego)

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 vacancies. We extend the model by introducing a sunk cost for creating new job positions, motivated by the well-known fact that worker turnover exceeds job turnover. In the matching model with sunk costs, vacancies react sluggishly to shocks, leading to highly realistic dynamics.

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File URL: http://econwpa.repec.org/eps/mac/papers/0509/0509026.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0509026.

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Length: 43 pages
Date of creation: 26 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0509026
Note: Type of Document - pdf; pages: 43
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Silva, José Ignacio & Toledo, Manuel, 2009. "Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 76-96, May.
  2. Michael U. Krause & Thomas A. Lubik, 2006. "On-the-Job Search and the Cyclical Dynamics of the Labor Market," Computing in Economics and Finance 2006 455, Society for Computational Economics.
  3. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-68, December.
  4. Ricardo J. Caballero & Mohamad L. Hammour, 1996. "On the Timing and Efficiency of Creative Destruction," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 805-852.
  5. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-59, November.
  6. Rudanko, Leena, 2009. "Labor market dynamics under long-term wage contracting," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 170-183, March.
  7. Wouter J. den Haan & Garey Ramey & Joel Watson, 1997. "Job Destruction and Propagation of Shocks," NBER Working Papers 6275, National Bureau of Economic Research, Inc.
  8. Bruce C. Fallick & Charles A. Fleischman, 2004. "Employer-to-employer flows in the U.S. labor market: the complete picture of gross worker flows," Finance and Economics Discussion Series 2004-34, Board of Governors of the Federal Reserve System (U.S.).
  9. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
  10. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  11. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  12. Jackman, R & Layard, Richard & Pissarides, C, 1989. "On Vacancies," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(4), pages 377-94, November.
  13. Shigeru Fujita, 2004. "Vacancy persistence," Working Papers 04-23, Federal Reserve Bank of Philadelphia.
  14. Oliver Jean Blanchard & Peter Diamond, 1990. "The Cyclical Behovior of the Gross Flows of U.S. Workers," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 85-156.
  15. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  16. Lawrence J. Christiano & Jonas D.M. Fisher, 1997. "Algorithms for Solving Dynamic Models with Occasionally Binding Constraints," NBER Technical Working Papers 0218, National Bureau of Economic Research, Inc.
  17. Mortensen, Dale T. & Nagypál, Éva, 2005. "More on Unemployment and Vacancy Fluctuations," IZA Discussion Papers 1765, Institute for the Study of Labor (IZA).
  18. Aghion, Philippe & Howitt, Peter, 1991. "Growth and Unemployment," CEPR Discussion Papers 577, C.E.P.R. Discussion Papers.
  19. Eran Yashiv, 2005. "Forward-Looking Hiring Behavior and the Dynamics of the Aggregate Labor Market," 2005 Meeting Papers 360, Society for Economic Dynamics.
  20. R. Jason Faberman, 2004. "Gross Job Flows over the Past Two Business Cycles: Not all 'Recoveries' are Created Equal," Working Papers 372, U.S. Bureau of Labor Statistics.
  21. Shigeru Fujita, 2003. "The Beveridge Curve, Job Creation, and the Propagation of Shocks," Computing in Economics and Finance 2003 273, Society for Computational Economics.
  22. Katharine G. Abraham, 1987. "Help-Wanted Advertising, Job Vacancies, and Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 207-248.
  23. Hoyt Bleakley & Jeffrey C. Fuhrer, 1997. "Shifts in the Beveridge Curve, job matching, and labor market dynamics," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 3-19.
  24. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  25. James S. Costain & Michael Reiter, 2003. "Business Cycles, Unemployment Insurance, and the Calibration of Matching Models," CESifo Working Paper Series 1008, CESifo Group Munich.
  26. 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.
  27. Mortensen, Dale T., 1994. "The cyclical behavior of job and worker flows," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1121-1142, November.
  28. Dale T. Mortensen & Christopher A. Pissarides, 1998. "Technological Progress, Job Creation and Job Destruction," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 733-753, October.
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