Revisiting the Matching Function

Britta Kohlbrecher, Christian Merkl and Daniela Nordmeier
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Daniela Nordmeier: Deutsche Bundesbank

No 8515, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper shows analytically and numerically that there are two ways of generating an observationally equivalent comovement between matches, unemployment, and vacancies in dynamic labor market models: either by assuming a standard Cobb-Douglas contact function or by combining a degenerate contact function with idiosyncratic productivity shocks for new jobs. Despite this observational equivalence, we provide several reasons for why it is important to understand what happens inside the black box of job creation. We calibrate a combined model with both mechanisms to administrative German wage and labor market flow data. In contrast to the model without idiosyncratic shocks, the combined model is able to replicate the observed negative time trend in estimated matching functions. In addition, the full nonlinear combined model generates highly asymmetric business cycle responses to large aggregate shocks.

Keywords: job creation; idiosyncratic productivity; matching function; vacancies; time trend; asymmetries (search for similar items in EconPapers)
JEL-codes: E24 E32 J63 J64 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2014-09
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - revised version published in: Journal of Economic Dynamics and Control, 2016, 69, 350–374.

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Related works:
Journal Article: Revisiting the matching function (2016)
Working Paper: Revisiting the Matching Function (2016)
Working Paper: Revisiting the matching function (2014)
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