Temporal Aggregation Bias in Stock-Flow Models

Kenneth Burdett, Melvyn Coles and Jan van Ours

No 967, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The matching function describes the flow of job creation as a function of the stocks of unemployed and vacancies. Most empirical work tries to identify such a relationship by regressing the flow of matches (aggregated over the month) on the stocks of unemployment and vacancies measured at the beginning of that month. It is shown that estimates obtained using this procedure will be downward biased if unemployment and vacancies are mean-reverting processes. If the bias is small, the size of the bias is proportional to the length of the period interval. By further aggregating the data, say from monthly to quarterly data, the downward bias should triple. The resulting change in the parameter estimates can then be used to estimate the size of the original bias.

Keywords: Matching; Temporal Aggregation Bias (search for similar items in EconPapers)
JEL-codes: C13 J64 (search for similar items in EconPapers)
Date: 1994-05
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Citations: View citations in EconPapers (44)

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Working Paper: Temporal Aggregation Bias in Stock-Flow Models (1994)
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