The Cyclical Behavior of Equilibrium Unemployment and Vacancies – A Comment

Simon Burgess (simon.burgess@bristol.ac.uk) and Hélène Turon

Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK

Abstract: The Mortensen-Pissarides model is an attractive model because it is tractable, delivers some intuitive comparative statics and permits policy analysis. However, Shimer (2005) shows that the model generates far too little volatility in its key variables - unemployment and vacancies - relative to the variation in the shock variables. Shimer identifes the flexibility of wages as the key issue. In this Comment, we show that it is possible to generate suffcient volatility in unemployment and vacancies whilst retaining the standard wage determination process. We set out a model with two important changes from the Mortensen-Pissarides approach: job search by the employed is allowed, and the vacancy creation condition is changed to allow churning of workers. Calibrating the model to UK data, we show that our model can produce volatility in the unemployment and vacancy series to match the data; we confirm for the UK that the Mortensen-Pissarides model cannot, as shown by Shimer for the US.

Keywords: Unemployment; on-the-job search; worker flows; job flows; matching. (search for similar items in EconPapers)
JEL-codes: J64 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2005-01
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Persistent link: https://EconPapers.repec.org/RePEc:bri:uobdis:05/573

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