Business Cycles, Unemployment Insurance and the Calibration of Matching Models

This paper points out an empirical 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, both sticky wages and match-specific productivity shocks help the model reproduce the stylized facts: both make the firm's flow of surplus more procyclical, thus making hiring more procyclical too.

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  1. Christopher A. Pissarides, 2000. " Equilibrium Unemployment Theory, 2nd Edition ," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  2. Marcus Hagedorn & Iourii Manovskii, 2008. " The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited ," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.

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  1. Rogerson, Richard & Shimer, Robert, 2011. " Search in Macroeconomic Models of the Labor Market ," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.

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