The Accelerated Failure Time Model: Estimation and Testing using Price Change and Labor Market Data

Robert Shimer, Katarina Borovickova and Fernando Alvarez
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Katarina Borovickova: New York University
Fernando Alvarez: University of Chicago

No 1434, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We use labor market data and data on price changes to examine the role of structural duration dependence and heterogeneity in shaping the aggregate hazard rates. In contrast to our companion paper, we examine this question through the lens of an accelerated failure time model, rather than a proportional hazard model. We focus on environments where we observe two observations per individual. We use a well-known lemma by Kotlarski (1967) to prove that the accelerated failure time model is nonparametrically identified. We also establish that the model is overidentified. In particular, we prove that the accelerated failure time model imposes restrictions on the two-sided Laplace transformation of the joint density of two spells. We intend to examine this restriction and, if possible, estimate the model using data on the timing of price changes and on the duration of employment and non-employment spells.

Date: 2015
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