Price Rigidity and the Volatility of Vacancies and Unemployment
نویسندگان
چکیده
The successful matching model developed by Mortensen and Pissarides seems to find its hardest task in explaining the cyclical movements of some key labor market variables such as the vacancy rate and the vacancy-unemployment ratio. Several authors have discussed mechanisms compatible with the matching technology that are able to deliver the kind of correlations observed in the data. In this paper we explore the contribution of price rigidity, within the framework of a full-blown SDGE model, to explain the dynamics of these variables. We find that price rigidity greatly improves the empirical performance of the model, making it capable of reproducing second moments of the data, in particular those related to the vacancy rate and market tightness. Other realistic features of these models, such as intertemporal substitution, endogenous match destruction and capital accumulation, do not seem to play a relevant role in a flexible price setting.
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