Working Paper

The Matching Function and Nonlinear Business Cycles

Abstract: The Cobb-Douglas matching function is ubiquitous in search and matching models, even though it imposes a constant matching elasticity that is unlikely to hold empirically. Using a general constant returns to scale matching function, this paper first derives analytical conditions that determine how the cyclicality of the matching elasticity amplifies or dampens the nonlinear dynamics of the job finding and unemployment rates. It then demonstrates that these effects are quantitatively significant and driven by plausible variation in the matching elasticity.

Keywords: Matching Function; Matching Elasticity; Nonlinear; Finding Rate; Unemployment;

JEL Classification: E24; E32; E37; J63; J64;

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Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 2022-02-09

Number: 2201