Hostname: page-component-586b7cd67f-r5fsc Total loading time: 0 Render date: 2024-11-22T20:04:48.910Z Has data issue: false hasContentIssue false
  • English
  • Français

UNEMPLOYMENT BENEFITS AND MATCHING EFFICIENCY IN AN ESTIMATED DSGE MODEL WITH LABOR MARKET SEARCH FRICTIONS

Published online by Cambridge University Press:  22 November 2017

Ji Zhang
Ji Zhang*
Affiliation:
Tsinghua University
*
Address correspondence to: Ji Zhang, PBC School of Finance, Tsinghua University, 43 Chengfu Road, Haidian District, Beijing, China; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

To explain the high and persistent unemployment rate in the United States during and after the Great Recession, this effort develops and estimates a dynamic stochastic general equilibrium model with search and matching frictions and shocks to unemployment benefits and matching efficiency. It finds that unemployment benefits play an important role in the cyclical movement of unemployment through their effects on labor demand, a channel overlooked in previous studies. From the second half of 2008 to 2011, extended unemployment benefits may have increased the overall unemployment rate by one percentage point. In contrast, matching efficiency changes had less effect on the cyclical movement of unemployment for the same period, but significantly slowed down the recovery after 2012.

Keywords

DSGESearch and Matching FrictionsUnemployment BenefitsMatching Efficiency
Type
Articles
Information
Macroeconomic Dynamics , Volume 21 , Issue 8 , December 2017 , pp. 2033 - 2069
Copyright
Copyright © Cambridge University Press 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I would like to thank my advisor, James D. Hamilton, for his invaluable advice. I would also like to thank Davide Debortoli, Shigeru Fujita, Garey Ramey, Irina A. Telyukova, and seminar participants at 2014 Midwest Macro and 2015 SNDE for their comments and suggestions. I am also grateful to Francesco Furlanetto and Nicolas Groshenny for generously sharing their data.

References

REFERENCES

Andolfatto, David (1996) Business cycles and labor market search. American Economic Review 861, 112–132.Google Scholar
Barnichon, Regis (2010) Building a composite help-wanted index. Economics Letters 109, 175–178.Google Scholar
Barnichon, Regis and Figura, Andrew (2011) What Drives Matching Efficiency? A Tale of Composition and Dispersion. Finance and economics discussion 2011–10, Board of Governors of the Federal Reserve System.Google Scholar
Christiano, Lawrence J., Eichenbaum, Martin, and Trabandt, Mathias (2013) Unemployment and Business Cycles. International finance discussion paper. NBER working paper w19265.Google Scholar
Council of Economic Advisers and Department of Labor (2013) The Economic Benefits of Extending Unemployment Insurance. https://www.whitehouse.gov/sites/default/files/docs/uireport-2013-12-4.pdf Google Scholar
Den Hann, Wouter, Ramey, Garey, and Watson, Joe (2000) Job destruction and propagation of shocks. American Economic Review 90 (3), 482–498.Google Scholar
Farber, Henry and Valletta, Robert (2013) Do Extended Unemployment Benefits Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market. Federal Reserve Bank of San Francisco working paper.Google Scholar
Fujita, Shigeru and Ramey, Garey (2009) The cyclicality of separation and job finding rates. International Economic Review May 2009, 415–430.Google Scholar
Furlanetto, Francesco and Groshenny, Nicolas (2012) Mismatch Shocks and Unemployment during the Great Recession. CAMA working paper 34/2012.Google Scholar
Gertler, Mark, Sala, Luca, and Trigari, Antonella (2008) An estimated monetary DSGE model with unemployment and staggered nominal wage bargaining. Journal of Money, Credit and Banking 40 (8), 1713–1764.Google Scholar
Groshenny, Nicolas (2013) Monetary policy, inflation and unemployment: In defense of the Federal Reserves. Macroeconomic Dynamics 17, 1311–1329.Google Scholar
Hagedorn, Marcus, Karahan, Fatih, Manovskii, Iourii, and Mitman, Kurt (2013) Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects. NBER working paper 19499.Google Scholar
Hagedorn, Marcus, Manovskii, Iourii, and Mitman, Kurt (2015) The Impact of Unemployment Benefit Extensions on Employment: The 2014 Employment Miracle? NBER working paper 20884.Google Scholar
Krause, Michael and Lubik, Thomas (2007) The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions. Journal of Monetary Economics 54, 706–727.Google Scholar
Mitman, Kurt and Rabinovich, Stanislav (2014) Do Unemployment Benefit Extensions Explain the Emergence of Jobless Recoveries? Working paper, Institute for International Economic Studies, Stockholm University.Google Scholar
Mortensen, Dale and Pissarides, Christopher (1994) Job creation and job destruction in the theory of unemployment. Review of Economic Studies 61, 397–415.Google Scholar
Rothstein, Jesse (2011) Unemployment Insurance and Job Search in the Great Recession. NBER working paper.Google Scholar
Shimer, Rober (2005) The cyclical behavior of equilibrium unemployment and vacancies. American Economic Review 95 (1), 25–49.Google Scholar
Smets, Frank and Wouters, Rafael (2007) Shocks and frictions in US business cycles: A Bayesian DSGE approach. American Economic Review 97 (3), 586–606.Google Scholar
Trigari, Antonella (2009) Equilibrium unemployment, job flows, and inflation dynamics. Journal of Money, Credit and Banking 41 (1), 1–33.Google Scholar
Valletta, Robert G. and Kuang, Katherine (2010) Is Structural Unemployment on the Rise? FRBSF economic letter 2010-34.Google Scholar
Zhang, Ji (2014) Unemployment Policies during the Great Recession and over the Business Cycle. Working paper, PBC School of Finance, Tsinghua University.Google Scholar