Can the Stochastic Equilibrium Job Search Models Fit Transition Economies?

Marcin Woźniak ()
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Marcin Woźniak: Department of Labour and Social Policy, Poznan University of Economics, Poland

Acta Oeconomica, 2015, vol. 65, issue 4, 567-591

Abstract: The aim of this study is to apply the stochastic job search framework to the analysis of three transition economies (Poland, Hungary, and the Czech Republic). Two versions of equilibrium unemployment models have been developed resembling Mortensen and Pissarides’ models, namely the dynamic and stochastic models. The dynamic model’s properties were briefly examined by evaluating the Jacobian matrix and plotting the phase plane of the economy. In the primary analysis of the stochastic model, job destruction decisions are endogenous as a response to random productivity changes. A martingale, i.e. a discrete-space version of the geometric Brownian motion with the drift and volatility parameter, was used to enable fluctuation of endogenous variables and to perform numerical simulations. The results are promising, although ambiguous in some points, e.g. the main model-generated time-series are close to the empirical time-series, including reasonable fluctuations, correlation signs, and autocorrelations. However, the model was unable to capture some subtle differences in productivity and job destruction rate series across the countries, which is its main limitation.

Keywords: business cycle; endogenous destruction; equilibrium unemployment; stochastic process; wage dispersion (search for similar items in EconPapers)
JEL-codes: E32 J31 J63 J64 (search for similar items in EconPapers)
Date: 2015
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