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Working Paper

The Cyclical Behavior of Equilibrium Unemployment and Vacancies across OECD Countries

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We show that the inability of a standardly calibrated labor search-and-matching model to account for observed levels of labor market volatility extends beyond the U.S. to a set of OECD countries. That is, the volatility puzzle is ubiquitous. We argue that cross-country data is helpful in scrutinizing between potential solutions to this puzzle. To illustrate this, we show that the solution proposed in Hagedorn and Manovskii (2008) is rather fragile and fails for some countries in our sample. It delivers counterfactually low volatility for economies where the elasticity of wages with respect to productivity is sufficiently high and where productivity persistence and/or vacancy-filling rates are sufficiently low.
Topics
Labor economics
11.18.2015ISSN 2573-7953 WP 12-36R2Original Paper WP 12-36Revisions WP 12-36RDOI 10.26509/frbc-wp-201236r2
Keywords labor market, vacancies, unemployment, oecd countries
JEL Classification Codes E24, E32, J63, J64

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Amaral, Pedro S., and Murat Tasci. 2015. “The Cyclical Behavior of Equilibrium Unemployment and Vacancies across OECD Countries .” Federal Reserve Bank of Cleveland, Working Paper No. 12-36R2. https://doi.org/10.26509/frbc-wp-201236r2