## Unemployment and Vacancy Fluctuations in the Matching Model: Inspecting the Mechanism: A Reprint from ¿Economic Quarterly¿The behavior of unemploy. over the bus. cycle plays an important role in economic policy considerations. Most of the variation in unemploy. comes about through changes in job-finding rates. Search theories of unemploy. study the implications of the matching process between unemployed workers and vacant jobs in environments with search frictions. The authors review work on whether these theories are consistent with the cyclical behavior of unemploy. and job-finding rates. They conclude that when the basic search model is calibrated to generate labor market volatility of a magnitude comparable with the data, it has sharp counterfactual implications for the size and the cyclicality of the wage share and for the elasticity of unemploy. to welfare benefits. |

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ˆθ Andolfatto arrival rate Autocorrelation bargaining becomes arbitrarily small business cycle changes in productivity comparative statics constant countercyclical decreasing deﬁned deﬁnition derive different calibration discuss dynamic economy effect on unemployment elasticity of labor equal equation 25 equilibrium conditions exogenous expression ﬁnd ﬁnite ﬁrms and workers ﬁrst ﬂow value free-entry condition frictionless frictions Hagedorn & Manovskii Hagedorn and Manovskii Hall’s higher HP Smoothing Parameter implies inﬁnite inﬂuence instantaneous job-ﬁnding rate labor market tightness labor productivity labor share match separation matching model Nash-bargaining solution net present value number of unemployed obtain output parameterization percent increase Pissarides Poisson process productivity shocks proﬁts rigid wages satisﬁes Section separation rate Shimer Shimer’s calibration signiﬁcantly solve steady state value stochastic strongly to changes sufﬁcient Table tightness with respect unem unemployed worker meets unemployment beneﬁts unemployment rate vacant ﬁrms variable wage equation wage share Walrasian model worker-ﬁnding rate