Business cycles, unemployment insurance, and the calibration of matching models

James Costain and Michael Reiter

Journal of Economic Dynamics and Control, 2008, vol. 32, issue 4, 1120-1155

Abstract: This paper theoretically and empirically documents a puzzle that arises when an RBC economy with a job matching function is used to model unemployment. The standard model can generate sufficiently large cyclical fluctuations in unemployment, or a sufficiently small response of unemployment to labor market policies, but it cannot do both. Variable search and separation, finite UI benefit duration, efficiency wages, and capital all fail to resolve this puzzle. However, either sticky wages or match-specific productivity shocks can improve the model's performance by making the firm's flow of surplus more procyclical, which makes hiring more procyclical too.

Date: 2008
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Related works:
Working Paper: Business Cycles, Unemployment Insurance and the Calibration of Matching Models (2015)
Working Paper: Business cycles, unemployment insurance and the calibration of matching models (2006)
Working Paper: Business Cycles, Unemployment Insurance, and the Calibration of Matching Models (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:32:y:2008:i:4:p:1120-1155

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