A Note on Cyclical Discount Factors and Labor Market Volatility
نویسنده
چکیده
In this paper, I examine how time-varying discount factors can contribute to labor market volatility in a Diamond-Mortensen-Pissarides matching model. I find that the procyclical discount factor of either entrepreneurs or workers can magnify labor market volatility. Quantitatively, the entrepreneur’s discount factor has a larger effect than the worker’s discount factor. To account for the observed labor market volatility, an extremely large variation in discount factors is necessary.
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