Document Type
Article
Department/Program
Economics
Journal Title
Journal of Money, Credit and Banking
Pub Date
12-2023
Publisher
Wiley
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Abstract
The Cobb-Douglas matching function is ubiquitous in labor search and matching models, even though it imposes a constant matching elasticity that is unlikely to hold empirically. To examine the implications of this discrepancy, this paper uses a general constant returns to scale matching function to derive conditions that show how the cyclicality of the matching elasticity affects the shape of the job finding rate as a function of productivity and amplifies or dampens nonlinear labor market dynamics. It then shows that modest variation in the matching elasticity, consistent with recent estimates, significantly affects higher order moments and optimal policy. This motivates research that can provide greater clarity on the matching function specification.
Recommended Citation
Bernstein, Joshua; Richter, Alexander W.; and Throckmorton, Nathaniel A., The Matching Function and Nonlinear Business Cycles (2023). Journal of Money, Credit and Banking.
https://doi.org/10.1111/jmcb.13115
DOI
https://doi.org/10.1111/jmcb.13115
Publisher Statement
We thank Nicolas Petrosky-Nadeau for his discussion at the 2022 American Economic Association Meeting. We also thank Domenico Ferraro, Emily Moschini, and Francesco Zanetti for comments that helped improve the paper. This work was supported by computational resources provided by the BigTex High Performance Computing Group at the Federal Reserve Bank of Dallas. The views expressed in this paper are our own and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System.
