Labor market volatility in a fully specified RBC search model: An analytical investigation

Jean-Paul K. Tsasa

Journal of Mathematical Economics, 2022, vol. 103, issue C

Abstract: I show that including a nonlinear production function with physical capital in the Diamond–Mortensen–Pissarides model lowers the elasticity of labor market tightness with respect to labor productivity by about 11.5% under the Hagedorn–Manovskii’s calibration. My finding is robust against different calibration techniques, as well as against different variants of real business cycle models with search-and-matching frictions. While the recent macroeconomics-labor literature focuses on the fundamental surplus to solve the Shimer puzzle, my analysis highlights the existence of an additional channel through which the nonlinearities implied by a production function with physical capital affect labor market volatility.

Keywords: Labor market search; Real business cycle model; Nonlinearities (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:103:y:2022:i:c:s0304406822001021

DOI: 10.1016/j.jmateco.2022.102776

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