[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/fip/feddwp/93702.html
   My bibliography  Save this paper

The Matching Function and Nonlinear Business Cycles

Author

Abstract
The Cobb-Douglas matching function is ubiquitous in search and matching models, even though it imposes a constant matching elasticity that is unlikely to hold empirically. Using a general constant returns to scale matching function, this paper first derives analytical conditions that determine how the cyclicality of the matching elasticity amplifies or dampens the nonlinear dynamics of the job finding and unemployment rates. It then demonstrates that these effects are quantitatively significant and driven by plausible variation in the matching elasticity.

Suggested Citation

  • Joshua Bernstein & Alexander W. Richter & Nathaniel A. Throckmorton, 2022. "The Matching Function and Nonlinear Business Cycles," Working Papers 2201, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:93702
    DOI: 10.24149/wp2201
    as

    Download full text from publisher

    File URL: https://www.dallasfed.org/-/media/documents/research/papers/2022/wp2201.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.24149/wp2201?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Carlo Pizzinelli & Konstantinos Theodoridis & Francesco Zanetti, 2020. "State Dependence In Labor Market Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1027-1072, August.
    2. Regis Barnichon & Andrew Figura, 2015. "Labor Market Heterogeneity and the Aggregate Matching Function," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 222-249, October.
    3. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-1187, December.
    4. repec:wop:calsdi:97-23 is not listed on IDEAS
    5. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    6. repec:hal:spmain:info:hdl:2441/4l136f59vb8mcalu5p6p5li007 is not listed on IDEAS
    7. Antoine Lepetit, 2020. "Asymmetric Unemployment Fluctuations and Monetary Policy Trade-Offs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 29-45, April.
    8. Nicolas Petrosky-Nadeau & Etienne Wasmer, 2017. "Labor, Credit, and Goods Markets," Post-Print hal-01647732, HAL.
    9. Lange, Fabian & Papageorgiou, Theodore, 2020. "Beyond Cobb-Douglas: Flexibly Estimating Matching Functions with Unobserved Matching Efficiency," IZA Discussion Papers 13177, Institute of Labor Economics (IZA).
    10. Abbritti, Mirko & Fahr, Stephan, 2013. "Downward wage rigidity and business cycle asymmetries," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 871-886.
    11. Rendahl, Pontus & Freund, Lukas B., 2020. "Unexpected Effects: Uncertainty, Unemployment, and Inflation," CEPR Discussion Papers 14690, C.E.P.R. Discussion Papers.
    12. Faia, Ester, 2009. "Ramsey monetary policy with labor market frictions," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 570-581, May.
    13. Jung, Philip & Kuester, Keith, 2011. "The (un)importance of unemployment fluctuations for the welfare cost of business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 35(10), pages 1744-1768, October.
    14. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
    15. Karen Kopecky & Richard Suen, 2010. "Finite State Markov-chain Approximations to Highly Persistent Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 701-714, July.
    16. Jean-Olivier Hairault & Francois Langot & Sophie Osotimehin, 2010. "Matching frictions, unemployment dynamics and the cost of business cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 759-779, October.
    17. Den Haan, Wouter J. & Freund, Lukas B. & Rendahl, Pontus, 2021. "Volatile hiring: uncertainty in search and matching models," Journal of Monetary Economics, Elsevier, vol. 123(C), pages 1-18.
    18. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    19. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
    20. Daniel Borowczyk-Martins & Gregory Jolivet & Fabien Postel-Vinay, 2013. "Accounting For Endogeneity in Matching Function Estimation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 440-451, July.
    21. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
    22. Alexander Richter & Nathaniel Throckmorton & Todd Walker, 2014. "Accuracy, Speed and Robustness of Policy Function Iteration," Computational Economics, Springer;Society for Computational Economics, vol. 44(4), pages 445-476, December.
    23. Robert E. Hall & Sam Schulhofer-Wohl, 2018. "Measuring Job-Finding Rates and Matching Efficiency with Heterogeneous Job-Seekers," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(1), pages 1-32, January.
    24. Coleman, Wilbur John, II, 1991. "Equilibrium in a Production Economy with an Income Tax," Econometrica, Econometric Society, vol. 59(4), pages 1091-1104, July.
    25. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
    26. Hoyt Bleakley & Jeffrey C. Fuhrer, 1997. "Shifts in the Beveridge Curve, job matching, and labor market dynamics," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 3-19.
    27. repec:hal:spmain:info:hdl:2441/4bujeqnqb9k0rpq6oqbmuqama is not listed on IDEAS
    28. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Springer;Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
    29. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    30. 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.
    31. Pascal Michaillat & Emmanuel Saez, 2019. "Beveridgean Unemployment Gap," Papers 1911.05271, arXiv.org, revised Nov 2021.
    32. Nicolas Petrosky-Nadeau & Lu Zhang & Lars-Alexander Kuehn, 2018. "Endogenous Disasters," American Economic Review, American Economic Association, vol. 108(8), pages 2212-2245, August.
    33. David M. Arseneau & Sanjay K. Chugh, 2012. "Tax Smoothing in Frictional Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 120(5), pages 926-985.
    34. Stéphane Dupraz & Emi Nakamura & Jón Steinsson, 2019. "A Plucking Model of Business Cycles," NBER Working Papers 26351, National Bureau of Economic Research, Inc.
    35. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    36. Bernstein, Joshua & Richter, Alexander W. & Throckmorton, Nathaniel A., 2021. "Cyclical net entry and exit," European Economic Review, Elsevier, vol. 136(C).
    37. Petrosky-Nadeau, Nicolas & Wasmer, Etienne, 2017. "Labor, Credit, and Goods Markets: The Macroeconomics of Search and Unemployment," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262036452, December.
    38. Lars Ljungqvist & Thomas J. Sargent, 2017. "The Fundamental Surplus," American Economic Review, American Economic Association, vol. 107(9), pages 2630-2665, September.
    39. Nigar Hashimzade & Salvador Ortigueira, 2005. "Endogenous Business Cycles With Frictional Labour Markets," Economic Journal, Royal Economic Society, vol. 115(502), pages 161-175, March.
    40. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
    41. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Suguru Otani, 2024. "Nonparametric Estimation of Matching Efficiency and Elasticity on a Private On-the-Job Search Platform: Evidence from Japan, 2014-2024," Papers 2410.17011, arXiv.org, revised Dec 2024.
    2. Suguru Otani, 2024. "Nonparametric Estimation of Matching Efficiency and Mismatch in Labor Markets via Public Employment Security Offices in Japan, 1972-2024," Papers 2407.20931, arXiv.org, revised Dec 2024.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joshua Bernstein & Alexander W. Richter & Nathaniel A. Throckmorton, 2021. "Nonlinear Search and Matching Explained," Working Papers 2106, Federal Reserve Bank of Dallas.
    2. Bernstein, Joshua & Richter, Alexander W. & Throckmorton, Nathaniel A., 2021. "Cyclical net entry and exit," European Economic Review, Elsevier, vol. 136(C).
    3. Joshua Bernstein & Michael D. Plante & Alexander W. Richter & Nathaniel A. Throckmorton, 2021. "Countercyclical Fluctuations in Uncertainty are Endogenous," Working Papers 2109, Federal Reserve Bank of Dallas.
    4. Domenico Ferraro, 2018. "The Asymmetric Cyclical Behavior of the U.S. Labor Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 145-162, October.
    5. Joshua Bernstein & Alexander W. Richter & Nathaniel A. Throckmorton, 2020. "The Business Cycle Mechanics of Search and Matching Models," Working Papers 2026, Federal Reserve Bank of Dallas.
    6. Matthias S. Hertweck & Vivien Lewis & Stefania Villa, 2021. "Going the Extra Mile: Effort by Workers and Job‐Seekers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 2099-2127, December.
    7. Kohlbrecher, Britta & Merkl, Christian, 2022. "Business cycle asymmetries and the labor market," Journal of Macroeconomics, Elsevier, vol. 73(C).
    8. Alejandro Justiniano & Claudio Michelacci, 2011. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies in the US and Europe," NBER Working Papers 17429, National Bureau of Economic Research, Inc.
    9. Petrosky-Nadeau, Nicolas & Wasmer, Etienne, 2015. "Macroeconomic dynamics in a model of goods, labor, and credit market frictions," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 97-113.
    10. Rendahl, Pontus & Freund, Lukas B., 2020. "Unexpected Effects: Uncertainty, Unemployment, and Inflation," CEPR Discussion Papers 14690, C.E.P.R. Discussion Papers.
    11. Alejandro Justiniano & Claudio Michelacci, 2012. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies in the United States and Europe," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 8(1), pages 169-235.
    12. Tsasa, Jean-Paul K., 2022. "Labor market volatility in a fully specified RBC search model: An analytical investigation," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    13. Antoine Lepetit, 2020. "Asymmetric Unemployment Fluctuations and Monetary Policy Trade-Offs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 29-45, April.
    14. Ryan Chahrour & Sanjay K. Chugh & Tristan Potter, 2014. "Searching for Wages in an Estimated Labor Matching Model," Boston College Working Papers in Economics 867, Boston College Department of Economics, revised 20 Dec 2016.
    15. Eleni Iliopulos & François Langot & Thepthida Sopraseuth, 2019. "Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(8), pages 2207-2237, December.
    16. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    17. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
    18. Thomas, Carlos, 2008. "Search and matching frictions and optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 936-956, July.
    19. Kuo Chun-Hung & Miyamoto Hiroaki, 2019. "Fiscal stimulus and unemployment dynamics," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(2), pages 1-19, June.
    20. Miquel Faig, 2008. "Labor Market Cycles and Unemployment Insurance Eligibility," 2008 Meeting Papers 183, Society for Economic Dynamics.

    More about this item

    Keywords

    Matching Function; Matching Elasticity; Nonlinear; Finding Rate; Unemployment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:feddwp:93702. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Amy Chapman (email available below). General contact details of provider: https://edirc.repec.org/data/frbdaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.