The Dynamic Beveridge Curve

44 Pages Posted: 13 Oct 2005

See all articles by Shigeru Fujita

Shigeru Fujita

Federal Reserve Bank of Philadelphia

Garey Ramey

University of California, San Diego (UCSD) - Department of Economics

Date Written: August 2005

Abstract

In aggregate U.S. data, exogenous shocks to labor productivity induce highly persistent and hump-shaped responses to both the vacancy-unemployment ratio and employment. The authors show that the standard version of the Mortensen-Pissarides matching model fails to replicate this dynamic pattern due to the rapid responses of vacancies. They extend the model by introducing a sunk cost for creating new job positions, motivated by the well-known fact that worker turnover exceeds job turnover. In the matching model with sunk costs, vacancies react sluggishly to shocks, leading to highly realistic dynamics.

Keywords: Unemployment, Vacancies, Labor adjustment, Matching

JEL Classification: E32, J63, J64

Suggested Citation

Fujita, Shigeru and Ramey, Garey, The Dynamic Beveridge Curve (August 2005). FRB Philadelphia Working Paper No. 05-22, Available at SSRN: https://ssrn.com/abstract=815669 or http://dx.doi.org/10.2139/ssrn.815669

Shigeru Fujita (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Philadelphia, PA 19106-1574
United States

Garey Ramey

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-5721 (Phone)
858-534-7040 (Fax)

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