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Price Rigidity and the Volatility of Vacancies and Unemployment”, mimeo, Universitat de Valencia (2006)
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@MISC{Andrés06pricerigidity,
author = {Javier Andrés and Rafael Doménech and Javier Ferri},
title = {Price Rigidity and the Volatility of Vacancies and Unemployment”, mimeo, Universitat de Valencia},
year = {2006}
}
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Abstract
The successful matching model developed by Mortensen and Pissarides seems to find its hardest task in explaining the cyclical movements of some key labor market variables such as the vacancy rate and the vacancy-unemployment ratio. Several authors have discussed mechanisms compatible with the matching technology that are able to deliver thekindofcorrelationsobservedinthedata. Inthispaperweexplorethecontribution of price rigidity, within the framework of a full blown SDGE model, to explain the dynamics of these variables. We find that price rigidity greatly improves the model's empirical performance making it capable of reproducing second moments of the data, in particular those related to the vacancy rate and market tightness. Other realistic features of these models such as intertemporal substitution, endogenous match destruction and capital accumulation do not seem to play a relevant role in a flexible prices setting.
Keyphrases
price rigidity vacancy rate relevant role vacancy-unemployment ratio empirical performance full blown sdge model market tightness intertemporal substitution second moment key labor market variable endogenous match destruction cyclical movement several author flexible price capital accumulation realistic feature successful matching model
