Is There a Beveridge Curve in the Short and the Long Run?

Robert Pater

Journal of Applied Economics, 2017, vol. 20, issue 2, 283-303

Abstract: The theoretical Beveridge curve has a negative slope and is convex to the origin, a relationship most often associated to the short run. However, search and matching theory indicates that certain shocks may affect unemployment and vacancies in the same way. I trace the effects of both types of shocks affecting the vacancy rate and the unemployment rate using U.S. data. I impose common factor restrictions in an unobserved component model and sign restrictions in a vector autoregressive model. I derive negatively and positively-correlated components of vacancies and unemployment. The negatively-sloped Beveridge curve is the result of an aggregate labour demand shock. This shock also causes some more long-lasting effects for vacancies and unemployment, the ‘loops’ around the Beveridge curve. The shock that creates a positive co-movement between vacancies and unemployment is due to matching efficiency and job destruction. This positive co-movement occurs after recessions and in the long run.

Date: 2017
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DOI: 10.1016/S1514-0326(17)30013-2

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