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The time-varying Beveridge curve

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Abstract
We use a Bayesian time-varying parameter structural VAR with stochastic volatility to investigate changes in both the reduced-form relationship between vacancies and the unemployment rate, and in their relationship conditional on permanent and transitory output shocks, in the post-WWII United States. Evidence points towards similarities and differences between the Great Recession and the Volcker disinflation, and wide-spread time variation along two key dimensions. First, the slope of the Beveridge curve exhibits a large extent of variation from the mid-1960s on. It is also notably pro-cyclical, whereby the gain is positively correlated with the transitory component of output. The evolution of the slope of the Beveridge curve during the Great Recession is very similar to its evolution during the Volcker recession in terms of both its magnitude and its time profile. Second, both the Great Inflation episode and the subsequent Volcker disinflation are characterized by a significantly larger negative correlation between the reduced-form innovations to vacancies and the unemployment rate than the rest of the sample period. Those years also exhibit a greater cross-spectral coherence between the two series at business-cycle frequencies. This suggests that they are driven by common shocks.

Suggested Citation

  • Luca Benati & Thomas A. Lubik, 2013. "The time-varying Beveridge curve," Working Paper 13-12, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:13-12
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    References listed on IDEAS

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    5. L. Matraeva & E. Vasiutina & S. Erokhin & O. Kaurova, 2018. "A Dynamic Model in the Labor Market: Reasons of Imbalances at the Transition Stage of the Economy," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 206-217.
    6. Sabine Klinger & Enzo Weber, 2016. "Decomposing Beveridge Curve Dynamics By Correlated Unobserved Components," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(6), pages 877-894, December.
    7. Stefan Schiman, 2021. "Labor Supply Shocks and the Beveridge Curve: Empirical Evidence from EU Enlargement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 108-127, April.
    8. Marco Guerrazzi, 2016. "Increasing Returns in Matching and Labour Market Dynamics: Comments on Indeterminacy and Search Theory," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 15(1), pages 85-88, June.
    9. Josué Diwambuena & Raquel Fonseca & Stefan Schubert, 2021. "Italian Labour Frictions and Wage Rigidities in an Estimated DSGE," BEMPS - Bozen Economics & Management Paper Series BEMPS88, Faculty of Economics and Management at the Free University of Bozen.
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    13. Legrand, Romain, 2018. "Time-Varying Vector Autoregressions: Efficient Estimation, Random Inertia and Random Mean," MPRA Paper 88925, University Library of Munich, Germany.
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