SEARCH INTENSITY AND THE CYCLICAL BEHAVIOR OF UNEMPLOYMENT AND VACANCIES

The ability of the standard matching model to explain the cyclical behavior of unemployment and vacancies is much debated. Shimer [2004ab] and Hall [2004] criticism this model for its lack of amplification mechanisms. They agree that this failure comes from the determination of wages according to a Nash bargaining process. We propose an alternative explanation based on the search intensity, which is constant in these contributions. The variability of search intensity constitutes a relevant amplification mechanism to account for the cyclical behavior of unemployment and vacancies even if the equilibrium wage is the outcome of Nash bargaining.