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The Unemployment Volatility Puzzle: a Note on the Role of Reference Points

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  • Vincent Boitier

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université)

Abstract

This theoretical note aims at studying the role of reference points in generating unemployment volatility. For this purpose, I introduce the notion of reference points in a standard Mortensen-Pissarides model. I obtain two results. First, I find that the obtained model is similar to the one found by Pissarides (2009) with matching costs. Second, I show that the introduction of reference points can increase significantly unemployment volatility through a mechanism à la Hagerdorn and Manovskii (2008).

Suggested Citation

  • Vincent Boitier, 2015. "The Unemployment Volatility Puzzle: a Note on the Role of Reference Points," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00878107, HAL.
    • Handle: RePEc:hal:cesptp:hal-00878107
    DOI: 10.4236/tel.2015.51013
    Note: View the original document on HAL open archive server: https://hal.science/hal-00878107v2
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    References listed on IDEAS

    as
    1. Robert Shimer, 2004. "The Consequences of Rigid Wages in Search Models," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 469-479, 04/05.
    2. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, April.
    3. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-1674, September.
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    7. Kfir Eliaz & Ran Spiegler, 2014. "Reference Dependence and Labor Market Fluctuations," NBER Macroeconomics Annual, University of Chicago Press, vol. 28(1), pages 159-200.
    8. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
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