Solving the DMP Model Accurately / Nicolas Petrosky-Nadeau, Lu Zhang.

Format:

Book

Author/Creator:

Petrosky-Nadeau, Nicolas.

Contributor:

National Bureau of Economic Research.

Zhang, Lu.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19208.

NBER working paper series no. w19208

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

An accurate global algorithm is critical for quantifying the dynamics of the Diamond-Mortensen-Pissarides model. Loglinearization understates the mean and volatility of unemployment, overstates the unemployment-vacancy correlation, and ignores impulse responses that are an order of magnitude larger in recessions than in booms. Although improving on loglinearization, the second-order perturbation in logs also induces large errors. We demonstrate these insights in the context of Hagedorn and Manovskii (2008). Once solved accurately, their small surplus calibration fails to explain the Shimer (2005) puzzle. While the volatility of labor market tightness is close to the data, the unemployment volatility is too high.

Notes:

Print version record

July 2013.