TY - JOUR
T1 - Business cycles, unemployment insurance, and the calibration of matching models
AU - Costain, James S.
AU - Reiter, Michael
N1 - Funding Information:
We gratefully acknowledge research grants from the Spanish Ministry of Education (PB98-1065 and PB98-1066) and the Ministry of Science and Technology (SEC2002-01601 and SEJ2004-03619) and from the Bank of Spain. Many people have given us helpful comments, including seminar participants at Pompeu Fabra, the University of Cyprus, FEDEA, Carlos III, Queen Mary, and EEA-ESEM 2004. We are especially thankful for data, programs, and advice from Wouter den Haan, Monika Merz, Robert Shimer, Giulio Fella, Christian Haefke, Victor Ríos Rull, Marcus Hagedorn, Steve Nickell, Andrew Glyn, John Schmitt, Ernesto Villanueva, Thijs van Rens, Olympia Bover, David Roodman, and two anonymous referees. The opinions and analysis in this paper are those of the authors, and do not necessarily coincide with those of the Bank of Spain or the Eurosystem. Errors are the responsibility of the authors.
PY - 2008/4
Y1 - 2008/4
N2 - This paper theoretically and empirically documents a puzzle that arises when an RBC economy with a job matching function is used to model unemployment. The standard model can generate sufficiently large cyclical fluctuations in unemployment, or a sufficiently small response of unemployment to labor market policies, but it cannot do both. Variable search and separation, finite UI benefit duration, efficiency wages, and capital all fail to resolve this puzzle. However, either sticky wages or match-specific productivity shocks can improve the model's performance by making the firm's flow of surplus more procyclical, which makes hiring more procyclical too.
AB - This paper theoretically and empirically documents a puzzle that arises when an RBC economy with a job matching function is used to model unemployment. The standard model can generate sufficiently large cyclical fluctuations in unemployment, or a sufficiently small response of unemployment to labor market policies, but it cannot do both. Variable search and separation, finite UI benefit duration, efficiency wages, and capital all fail to resolve this puzzle. However, either sticky wages or match-specific productivity shocks can improve the model's performance by making the firm's flow of surplus more procyclical, which makes hiring more procyclical too.
KW - Matching function
KW - Real business cycles
KW - Unemployment insurance
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U2 - 10.1016/j.jedc.2007.04.008
DO - 10.1016/j.jedc.2007.04.008
M3 - Article
AN - SCOPUS:40749091547
SN - 0165-1889
VL - 32
SP - 1120
EP - 1155
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
IS - 4
ER -