Assignment 3 - EC7210

Question 1

Vad säger beveridgekurvan?

Answer 1

It says that the steady state unemployment rate depends on the probability of entering unemployment λ and the probability of leaving unemployment θq(θ).

Question 2

Vilka tre ekvationer representerar steady state EQ i Beveridge modellen?

Answer 2

Beveridge-kurvan, Job-creation condition och Wage Curve.

Question 3

Vad är intuitioner för beveridgediagramet i θ-w space? W på y och θ på X.
Där vi har Wage kurvan och Job creation condition.

Answer 3

The job-creation curve is downward sloping and convex to the origin.
The intuition behind this is that a higher wage rate makes job creation less profitable leading to fewer job vacancies per unemployed worker.

The wage curve is linear in θ with a positive slope equal to βpc. The rationale behind this is that more vacancies per unemployed worker increases the relative bargaining power of workers, by increasing their outside option in the bargaining process (a higher θ means that the probability of finding another job is higher), which in turn pushes up the wage rate.

The equilibrium (θ, w) is at the intersection of the two curves. However, note that the unemployment rate is undetermined by this figure.

Question 4

Vad är intuitionen för diagrammet med beveridgekurvan och jobblinjen i u-v space?

Answer 4

Beveridge curve is negatively sloped and convex to the origin. The shape of this curve comes from the properties of the matching function. More vacancies implies that it is easier for unemployed workers to find a match which reduces the unemployment rate.

The job-creation line is here a ray from the origin. The reason is that, for a given θ, the vacancy rate must respond proportionally to changes in the unemployment rate to keep θ constant. The equilibrium vacancy rate and unemployment rate is at the intersection of these two curves.