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American Economic Journal: Macroeconomics: Vol. 4 No. 4 (October 2012)

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Exogenous versus Endogenous Separation

Article Citation

Fujita, Shigeru, and Garey Ramey. 2012. "Exogenous versus Endogenous Separation." American Economic Journal: Macroeconomics, 4(4): 68-93.

DOI: 10.1257/mac.4.4.68

Abstract

This paper assesses how various approaches to modeling the separation margin affect the quantitative ability of the Mortensen-Pissarides labor matching model. The model with a constant separation rate fails to produce realistic volatility and productivity responsiveness of the separation rate and worker flows. The specification with endogenous separation succeeds along these dimensions. Allowing for on-the-job search enables the model to replicate the Beveridge curve. All specifications, however, fail to generate sufficient volatility of the job finding rate. While adopting the Hagedorn-Manovskii calibration remedies this problem, the volume of job-to-job transitions in the on-the-job search specification becomes essentially zero. (JEL E24, J41, J64)

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Authors

Fujita, Shigeru (Federal Reserve Bank of Philadelphia)
Ramey, Garey (U CA, San Diego)

JEL Classifications

E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
J41: Labor Contracts
J64: Unemployment: Models, Duration, Incidence, and Job Search

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American Economic Journal: Macroeconomics


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