Do Job Destruction Shocks Matter in the Theory of Unemployment?

Melvyn Coles and Ali Moghaddasi Kelishomi

Economics Discussion Papers from University of Essex, Department of Economics

Abstract: The current DMP approach to labor markets presumes job destruction shocks are small. We relax that assumption and also allow un lled jobs, like unemployment, to evolve as a state variable. Calibrating an otherwise standard DMP framework, we identify a remarkable, (almost) perfect, fit of the empirical facts as reported in Shimer (2005, 2012). The results, how- ever, are also consistent with the insights of Davis and Haltiwanger (1992): that unemployment volatility is driven by large but infrequent job separation shocks. The approach not only provides an important synthesis of two litera- tures which, in other contexts, have appeared contradictory, it also identfies a more traditional view of the timing and progression of recessions.

Date: 2015
New Economics Papers: this item is included in nep-dge
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Journal Article: Do Job Destruction Shocks Matter in the Theory of Unemployment? (2018)
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