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Federal Reserve Bank of Philadelphia
Working Papers
The dynamic Beveridge curve
Shigeru Fujita
Garey Ramey
Abstract

In aggregate U.S. data, exogenous shocks to labor productivity induce highly persistent and hump-shaped responses to both the vacancy-unemployment ratio and employment. The authors show that the standard version of the Mortensen-Pissarides matching model fails to replicate this dynamic pattern due to the rapid responses of vacancies. They extend the model by introducing a sunk cost for creating new job positions, motivated by the well-known fact that worker turnover exceeds job turnover. In the matching model with sunk costs, vacancies react sluggishly to shocks, leading to highly realistic dynamics


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Shigeru Fujita & Garey Ramey, The dynamic Beveridge curve, Federal Reserve Bank of Philadelphia, Working Papers 05-22, 2005.
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Keywords: Employment ; Unemployment
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