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PERSISTENCE AND VOLATILITY OF BEVERIDGE CYCLES
Author(s) -
Sniekers Florian
Publication year - 2018
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12284
Subject(s) - economics , beveridge curve , business cycle , volatility (finance) , unemployment , externality , persistence (discontinuity) , econometrics , keynesian economics , macroeconomics , microeconomics , unemployment rate , geotechnical engineering , engineering
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.