Solving labor market matching models accurately

Wouter den Haan
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Wouter den Haan: University of Amsterdam

No 328, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: This raises the question whether standard solution techniques such as linearization are accurate enough in those models in which enough volatility is generated. This paper shows that often this is not the case. When enough volatility is generated the non-linearities matter and both first-order perturbation (linearization) as well as second-order perturbation lead to inaccurate solutions, especially during recessions when generated unemployment rates can be 30% above those generated by an accurate solution.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed008:328

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