Estimating a Search and Matching Model of the Aggregate Labor Market

FRB Richmond Economic Quarterly, Vol. 95, No. 2, Spring 2009, pp. 101-120

20 Pages Posted: 13 Dec 2012

See all articles by Thomas Lubik

Thomas Lubik

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: 2009

Abstract

The search and matching model of the labor market has become the workhorse for analyzing unemployment dynamics and the business cycle transmission mechanism. However, many quantitative studies of the search and matching framework argue that it is unable to replicate key labor market facts. These studies typically rely on a wide range of calibrated parameter values for which independent information is difficult to obtain. In this article, I specify and estimate a simple version of the search and matching framework using Bayesian methods. I show that the model has extremely weak internal propagation and that labor dynamics are explained almost exclusively by shocks that are residuals in the respective equations. Moreover, the structural parameter estimates appear to be only weakly identified and can change considerably across minor specification changes. This suggests that the search and matching model may not be a good framework for explaining business cycle fluctuations in the labor market.

Suggested Citation

Lubik, Thomas, Estimating a Search and Matching Model of the Aggregate Labor Market (2009). FRB Richmond Economic Quarterly, Vol. 95, No. 2, Spring 2009, pp. 101-120, Available at SSRN: https://ssrn.com/abstract=2188486

Thomas Lubik (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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