High Discounts and Low Fundamental Surplus: An Equivalence Result for Unemployment Fluctuations

Indrajit Mitra (), Taeuk Seo () and Yu Xu ()
Additional contact information
Indrajit Mitra: Financial Markets, Federal Reserve Bank of Atlanta, Atlanta, Georgia 30309
Taeuk Seo: Stephen M. Ross School of Business, University of Michigan–Ann Arbor, Ann Arbor, Michigan 48109
Yu Xu: Lerner College of Business and Economics, University of Delaware, Newark, Delaware 19716

Management Science, 2024, vol. 70, issue 6, 4051-4068

Abstract: We establish an observational equivalence between unemployment fluctuations of the Diamond-Mortensen-Pissarides search economy augmented with time varying risk premia and an otherwise identical economy without risk premia but with a time varying value of leisure. This equivalence holds for general risk premia processes and allows us to view the effects of different models of risk premia as operating through a single channel—one that alters the value of leisure. We derive simple expressions for semielasticities of labor market tightness with respect to productivity and risk premium shocks. We show wages can be used to detect misspecification in the discount rate process used in hiring decisions.

Keywords: equivalence result; fundamental surplus; unemployment fluctuations; time varying risk premia; model misspecification (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2022.03712 (application/pdf)

Related works:
Working Paper: High Discounts and Low Fundamental Surplus: An Equivalence Result for Unemployment Fluctuations (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:6:p:4051-4068

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().