The Cyclical Behavior of Equilibrium Unemployment and Vacancies Across OECD Countries

Abstract

We show that the inability of a standardly calibrated labor search-and-matching model to account for observed levels of labor market volatility extends beyond the U.S. to a set of OECD countries. That is, the volatility puzzle is ubiquitous. We arguet hat cross-country data is helpful in scrutinizing between potential solutions to this puzzle. To illustrate this, we show that the solution proposed in Hagedorn and Manovskii (2008) is rather fragile and fails for some countries in our sample. It delivers counterfactually low volatility for economies where the elasticity of wages with respect to productivity is sufficiently high and where productivity persistence and/orvacancy-filling rates are sufficiently low.

Publication
European Economic Review