Persistence and volatility of beveridge cycles

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Abstract

This article explains the cyclical behavior of the fluctuations in unemployment and vacancies by demand externalities. Adding such externalities to an otherwise standard search and matching model reduces the need for exogenous shocks in explaining these fluctuations. Under plausible parameter values, the equilibrium dynamics include a stable limit cycle that resembles the empirically observed counterclockwise cycles around the Beveridge curve. Calibrated to the duration of the business cycle, these endogenous “Beveridge cycles” are as persistent as the data, without losing any of the amplification of the standard model.
Original languageEnglish
Pages (from-to)665-698
JournalInternational Economic Review
Volume59
Issue number2
DOIs
Publication statusPublished - May 2018
Externally publishedYes

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