Exogenous vs' Endogenous Separation

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Exogenous vs. Endogenous Separation Garey
Ramey December 2007
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Approaches to modeling separation
margin Exogenous and constant Costain Reiter
(2006), Fujita Ramey (2007), Hagedorn
Manovskii (2008), Hall (2005), Hall and Milgrom
(2008), Hornstein, et al (2005), Mortensen
Nagypal (2007), Shimer (2005), Yashiv (2006),
others Exogenous and time-varying Mortensen
(2005), Mortensen Nagypal (2007), Shimer
(2005) Endogenous Cole and Rogerson (1999),
Fujita (2003,2004), Mortensen Pissarides
(1994), Pissarides (2007), others OTJ search
Mortensen (1994,2005), Krause Lubik (2006),
Pissarides (1994), Nagypal (2005a,b), Tasci
(2006), others
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• Empirical strategy
• Consider discrete-time version of standard
  Pissarides (2000) specification
• Calibrate at weekly frequency using standard
  parameter values
• Solve for dynamic stochastic equilibria with
  persistent idiosyncratic shocks
• Evaluate model using a wide range of empirical
  measures

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Preview of results Time-varying separation rates
raise unemployment volatility Exogenous
separation rate unrealistic volatility and
comovement of separation rate and worker
flows Endogenous separation rate without OTJ
search unrealistic Beveridge curve
correlation All four specifications
insufficient volatility of job finding rate,
vacancies and market tightness OTJ search with
Hagedorn-Manovskii parameters performs well
along all dimensions
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Matching market
- matching function
- market tightness
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Matching market
- matching function
- market tightness
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Matching market
- matching function
- market tightness
Free entry -
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Job match
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Job match
Exogenous separation
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Job match
Exogenous separation
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Summary
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Summary
Constant separation rate -
AR(1) separation rate -
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Endogenous separation
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Endogenous separation
lognormal, parameters
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Endogenous separation
lognormal, parameters
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OTJ search
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OTJ search
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OTJ search
determined as above
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Calibration
- Mortensen Nagypal (2007)
- survey evidence
- 3 mo. mean waiting time
- mean match productivity 1
- Fujita Ramey (2007)
Remaining parameters
- Fujita Ramey (2006)
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Solution method
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Solution method
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Endogenous separation
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Figure 1. Unemployment and worker transition
rates

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Figure 2. Worker flows
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Figure 3. Vacancies and market tightness
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Figure 4. Contemporaneous correlations
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Figure 7. Cross elasticities with productivity
Vacancies and market tightness
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Figure 9. Unemployment and worker transition
rates
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Figure 10. Worker flows
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Figure 11. Vacancies and market tightness

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Figure 12. Contemporaneous correlations
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Broad conclusions
Models with exogenous separation rates cannot
match key features of the data
OTJ search model with HM calibration does a good
job along nearly all dimensions considered
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Broad conclusions
Models with exogenous separation rates cannot
match key features of the data
OTJ search model with HM calibration does a good
job along nearly all dimensions considered
Outstanding issues
Reasonableness of HM parameter choices wage
rigidity needed?
Failure to generate realistic dynamic
interrelationships creation costs needed?