SIMULATING THE DIAMOND-PISSARIDES-MORTENSEN MODEL: SEARCH MODEL THAT GIVES REALISTIC ACCOUNT OF UNEMPLOYMENT

Abstract

This paper is about the conventional search models of unemployment. An as considerable number of authors point out that negatively - sloped Beverage curve is the result of an aggregate demand shock. The shock that creates a positive movement between vacancies and unemployment “loops” around the Beveridge curve is due to matching efficiency and job destruction. This positive co-movement of vacancies and unemployment occurs after recessions. It is why we include RBC model to see the co-movement of IRF function of 6 macro variables including: Labor and wages. New- Keynesian DSGE model was included out of fancy. Unemployment dynamics due to: output, matching efficiency, vacancy advertising cost, unemployment benefits, and exogenous separation rate is studied at the end.