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Exogenous versus Endogenous Separation

Shigeru Fujita and Garey Ramey

American Economic Journal: Macroeconomics, 2012, vol. 4, issue 4, 68-93

Abstract: This paper assesses how various approaches to modeling the separation margin affect the quantitative ability of the Mortensen-Pissarides labor matching model. The model with a constant separation rate fails to produce realistic volatility and productivity responsiveness of the separation rate and worker flows. The specification with endogenous separation succeeds along these dimensions. Allowing for on-the-job search enables the model to replicate the Beveridge curve. All specifications, however, fail to generate sufficient volatility of the job finding rate. While adopting the Hagedorn-Manovskii calibration remedies this problem, the volume of job-to-job transitions in the on-the-job search specification becomes essentially zero. (JEL E24, J41, J64)

JEL-codes: E24 J41 J64 (search for similar items in EconPapers)
Date: 2012
Note: DOI: 10.1257/mac.4.4.68
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Handle: RePEc:aea:aejmac:v:4:y:2012:i:4:p:68-93