Estimating a Search and Matching Model of the Aggregate Labor Market in Japan

Abstract

This paper studies how well a search and matching model can describe aggregate Japanese labor market dynamics in a full information setting. We develop a discretetime search and matching model with productivity and separation shocks and use it as a data-generating process for our empirical analysis. Using Bayesian methods, we estimate the model for data on unemployment and vacancy postings in Japan. We …nd that the model is successful in matching the volatility in unemployment and vacancies while it does not match the volatility of output and wages. We also …nd that both productivity and separation shocks contribute to movements in unemployment and vacancies, but productivity shocks more so.