Business cycles, unemployment insurance, and the calibration of matching models

By J. Costain, Michael Reiter. 2008

321 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/1d684ae792829974bbae65537c1b8c8b41379218

Citations in the corpus

• Unemployment Fluctuations with Staggered Nash Wage Bargaining (2006, unknown): “Let Jt (i) be the value to the firm of adding another worker at time t: Jt (i) = (1− α) yt (i) nt (i) − wt (i) + κ 2 xt (i) 2 + ρβEtΛt,t+1Jt+1 (i) (9)”
• LABOR TURNOVER COSTS AND THE CYCLICAL BEHAVIOR OF VACANCIES AND UNEMPLOYMENT (2009, unknown): “Considering condition (8) and solving for Je and Ji + in equations (6) and ( 7 ), and taking derivative with respect to w we get”
• Reassessing Labour Market Reforms: Temporary Contracts as a Screening Device (2014, unknown): “When the system is solved, it is possible to recover the Nash wage equations for new and pre-existing permanent contracts by substituting (3) and (6) into ( 13 ).”
• The Role of Labor Markets for Euro Area Monetary Policy (2009, unknown): “7, very close to the value of 2 favored by Costain and Reiter (2008). Fixed costs are essential in generating this reasonable elasticity of unemployment with respect to benefits.”
• Recessions and the Costs of Job Loss (2011, unknown): “Shimer shows that the basic MP model delivers too little volatility in unemployment for reasonable specifications of the aggregate shock process (see also Costain and Reiter 2008). Under Nash bargaining, the equilibrium wage largely absorbs shocks to labor productivity in the basic model. As a resul”
• The Fundamental Surplus (2017, unknown): “See also Costain and Reiter (2008) for an analysis of how calibrations of Nash-bargaining matching models affect both the volatility of unemployment over the business cycle and the sensitivity of unemployment to changes in unemployment benefits. the postulated increase in technological change.”
• Precautionary Saving Over the Business Cycle (2016, unknown): “On the other hand, if this houshold stays employed, it enjoys marginal utility η, as it did in period t (by equation (15)).”
• The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited (2008, unknown): “Shimer (2005) and Costain and Reiter (2005) have also noted that θ,p is decreasing in p− z and can be made arbitrarily large.”
• An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining (2008, unknown): “(12) The number of new hires or “matches”, mt, is a function of searching workers and vacancies, as follows: mt = σmu σ t v 1−σ t .”
• The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer? (2009, unknown): “The canonical model assumes that wages share the surplus from the job in fixed proportions at all times W (x)− U = βS(x) ∀x ∈ [R, 1], (21)”