Harashima, Taiji (2011): A mechanism of cyclical volatility in the vacancy-unemployment ratio: what is the source of rigidity?
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The conventional search and matching model has been criticized for its inability to explain large cyclical volatility in the vacancy-unemployment ratio without ad hoc assumptions of wage rigidity. This paper presents a mechanism of such volatility without assuming wage rigidity by showing that households can rationally select a Nash equilibrium consisting of strategies of choosing a Pareto inefficient transition path. This type of path is generated after a time preference shock and causes a persistently large amount of extra unutilized resources. The labor market is thereby distorted and becomes more cyclically volatile. Vacancy costs are particularly affected by this Nash equilibrium. Because this Pareto inefficient path proceeds “rigidly,” that is, the Pareto inefficiency diminishes gradually, an ingredient of rigidity is introduced into the economy, and the vacancy-unemployment ratio experiences large cyclical fluctuations.
|Item Type:||MPRA Paper|
|Original Title:||A mechanism of cyclical volatility in the vacancy-unemployment ratio: what is the source of rigidity?|
|Keywords:||Vacancy; Unemployment; Rigidity; Pareto efficiency; Nash equilibrium; Business cycles; Time preference|
|Subjects:||D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D50 - General
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J64 - Unemployment: Models, Duration, Incidence, and Job Search
|Depositing User:||Taiji Harashima|
|Date Deposited:||24. Feb 2012 15:30|
|Last Modified:||20. Feb 2013 21:13|
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A Mechanism of Cyclical Volatility in the Vacancy-Unemployment Ratio: What Is the Source of Rigidity? (deposited 29. Jul 2011 14:28)
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