Business Cycles, Unemployment Insurance and the Calibration of Matching Models

James Costain and Michael Reiter

No 215, Working Papers from Barcelona School of Economics

Abstract: This paper points out an empirical 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, both sticky wages and match-specific productivity shocks help the model reproduce the stylized facts: both make the firm's flow of surplus more procyclical, thus making hiring more procyclical too.

Keywords: Unemployment Insurance; real business cycles; matching function (search for similar items in EconPapers)
JEL-codes: C78 E24 E32 I38 J64 (search for similar items in EconPapers)
Date: 2015-09
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Citations: View citations in EconPapers (77)

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Related works:
Journal Article: Business cycles, unemployment insurance, and the calibration of matching models (2008)
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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