Business cycles, unemployment insurance and the calibration of matching models

James Costain and Michael Reiter

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: This paper theoretically and empirically documents a puzzle that arises when an RBC economy with a job matching function is used to model unemployment. The standard model can generate sufficiently large cyclical fluctuations in unemployment, or a sufficiently small response of unemployment to labor market policies, but it cannot do both. Variable search and separation, finite UI benefit duration, efficiency wages, and capital all fail to resolve this puzzle. However, either sticky wages or match-specific productivity shocks can improve the model's performance by making the firm's flow of surplus more procyclical, which makes hiring more procyclical too.

Keywords: Real business cycles; matching function; unemployment insurance (search for similar items in EconPapers)
JEL-codes: C78 E24 E32 I38 J64 (search for similar items in EconPapers)
Date: 2003-06, Revised 2006-10
New Economics Papers: this item is included in nep-dge, nep-ias and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Related works:
Working Paper: Business Cycles, Unemployment Insurance and the Calibration of Matching Models (2015)
Journal Article: Business cycles, unemployment insurance, and the calibration of matching models (2008)
Working Paper: Business Cycles, Unemployment Insurance, and the Calibration of Matching Models (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:872

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