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Cyclical Behavior of a Matching Model with Capital Investment

Hiroaki Miyamoto

No EMS_2010_14, Working Papers from Research Institute, International University of Japan

Abstract: This paper studies the role of capital investment in a search and matching model. I develop an endogenous job separation matching model in which a firm's irreversible capital investment is endogenously determined. The incorporation of capital investment provides an additional channel for firms to respond to productivity shocks, significantly magnifying labor market fluctuations. The numerical results demonstrate that the incorporation of irreversible capital investment improves the ability of the standard search and matching model to generate cyclical fluctuations of unemployment and vacancies in response to productivity shocks. Moreover, my model can generate the pro-cyclicality of vacancies, which the standard endogenous separation models often fail to generate.

Keywords: Labor market search; Unemployment and vacancies volatility; Business Cycle; Capital investment (search for similar items in EconPapers)
JEL-codes: E24 E32 J63 J64 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2006-04, Revised 2010-10
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https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2010_14.pdf First version, 2006 (application/pdf)

Related works:
Journal Article: Cyclical Behavior of a Matching Model with Capital Investment (2011) Downloads
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