The standard search and matching model (D. Mortensen and C.Pissarides,1994; Pissarides, 2000) has been recently challanged by many economists. The Mortensen-Pissarides (1994) model in general says that it takes time to match jobs and workers, which causes unemployment as an outcome of market frictions. The volatility of unemployment fluctuations in the model is not corresponding to the baseline calibration that R. Shimer (2005) has found for the US data. Many authors modified the model in order to solve this lack of volatility.
First I introduce the Mortensen-Pissarides model to refer in the second part to the models parameters. Next, I present solutions found by Hall (2005) who solves the model via rigid wage setting and Hagedorn and Manovskii(2005) who provide a small surplus calibration to overcome the lack in volatility of the labor market variables. According to the so called “Shimer Puzzle” I will present shortly the findings of Gartner, Merkl and Rothe (2009), who calibrate the key labor market variables over the business cycle for the West-German labor market. Further I introduce Morensen and Nagypál (2007) publications on an amneded version of the model and a model with endogenous separations.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Literature
- The Model
- The Shimer Results and Solving the Lack of Volatility
- Accounting for labor market volatility in Germany: Gartner et al. (2009)
- Extensions of the MP Model
- Endogenous Separations according to Mortensen and Nagypál (2007)
- Conclusion
- Concluding Remarks
- References
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper examines the standard search and matching model (MP model) and its ability to replicate observed labor market volatility. It critiques the model's shortcomings in explaining the volatility of unemployment fluctuations, specifically the "Shimer Puzzle," and explores various modifications proposed to address this issue.
- The "Shimer Puzzle" and the lack of volatility in the MP model.
- Solutions proposed by Hall (2005) and Hagedorn and Manovskii (2005) to address the volatility issue.
- Analysis of the key labor market variables for the West-German labor market (Gartner, Merkl, and Rothe, 2009).
- Modifications to the MP model by Mortensen and Nagypál (2007) to improve the model's ability to explain labor market fluctuations.
- Evaluation of the effectiveness of these modifications in resolving the Shimer Puzzle.
Zusammenfassung der Kapitel (Chapter Summaries)
The paper begins by introducing the standard search and matching model (MP model), outlining its core principles and explaining how it generates unemployment as a result of market frictions. The introduction also highlights the model's limitations in replicating observed labor market volatility, as demonstrated by the "Shimer Puzzle."
The subsequent chapter delves into the Shimer results and explores proposed solutions to the lack of volatility. The chapter discusses the work of Hall (2005), who proposes rigid wage setting as a solution, and Hagedorn and Manovskii (2005), who suggest a small surplus calibration to overcome the volatility issue.
The paper then presents findings from Gartner, Merkl, and Rothe (2009) regarding the calibration of key labor market variables over the business cycle for the West-German labor market. This section further contextualizes the "Shimer Puzzle" and its relevance to different economic contexts.
The final chapter explores extensions to the MP model, focusing on the work of Mortensen and Nagypál (2007). This section examines their proposed modifications to the model, particularly their introduction of endogenous separations, and evaluates the impact of these changes on the model's ability to explain labor market fluctuations.
Schlüsselwörter (Keywords)
The paper focuses on key concepts such as the standard search and matching model (MP model), the "Shimer Puzzle," labor market volatility, unemployment fluctuations, wage stickiness, surplus calibration, endogenous separations, and the West-German labor market.
- Citation du texte
- Kathrin Tiecke (Auteur), 2009, How to solve the Lack of Volatility in the standard MP model, Munich, GRIN Verlag, https://www.grin.com/document/162486
