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

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DOI: 10.4236/tel.2015.51013    3,186 Downloads   3,810 Views  
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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 in 2009. Second, I show that the introduction of reference points can increase significantly unemployment volatility through a mechanism à la Hagerdorn and Manovskii.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

Boitier, V. (2015) The Unemployment Volatility Puzzle: A Note on the Role of Reference Points. Theoretical Economics Letters, 5, 92-96. doi: 10.4236/tel.2015.51013.

References

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[3] Koszegi, B. and Rabin, M. (2006) A Model of Reference-Dependent Preferences. Quarterly Journal of Economics, 121, 1133-1166.
[4] Hagerdorn, M. and Manovskii, I. (2008) The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited. American Economic Review, 98, 1692-1706. http://dx.doi.org/10.1257/aer.98.4.1692
[5] Pissarides, C. (2009) The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer? Econometrica, 77, 1339-1369. http://dx.doi.org/10.3982/ECTA7562
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[7] Pissarides, C. (2000) Equilibrium Unemployment Theory. MIT Press, Cambridge.
[8] Compte, O. and Jehiel, P. (2003) Bargaining with Reference Dependent Preferences, Mimeo.

  
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