Discussion Paper

No. 2017-65 | September 25, 2017
What moves the Beveridge curve and the Phillips curve: an agent-based analysis

Abstract

Understanding what moves the Phillips curve is important to monetary policy. Because the Phillips curve has experienced over time movements similar to those characterizing the Beveridge curve, the authors jointly analyze the two phenomena. They do that through an agent-based macro model based on adaptive micro-foundations, which works fairly well in replicating a number of stylized facts, including the Beveridge curve, the Phillips curve and the Okun curve. By Monte Carlo experiments the authors explore the mechanisms behind the movements of the Beveridge curve and the Phillips curve. They discovered that shifts of the Beveridge curve are best explained by the intensity of worker reallocation. Reallocation also shifts the Phillips curve in the same direction, suggesting that it may be the reason behind the similarity of the patterns historically recorded for these two curves. This finding may shed new light on what moves the Phillips curve and might have direct implications for the conduction of monetary policy.

JEL Classification:

C63, D51, E31, J30, J63, J64

Assessment

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Links

Cite As

Siyan Chen and Saul Desiderio (2017). What moves the Beveridge curve and the Phillips curve: an agent-based analysis. Economics Discussion Papers, No 2017-65, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2017-65


Comments and Questions


Anonymous - Referee report 1
October 19, 2017 - 08:40

I believe the topic of the paper is very interesting and the contribution seems relevant enough to be considered for publication by this journal. Indeed the joint analysis of the Phillips curve and the Beveridge Curve seems to be neglected as they are typically analysed in isolation.

The goal ...[more]

... of the paper is also clearly stated in the introduction, especially when they argue that their intention is to test the two hypotheses of “job market efficiency” and “worker reallocation”. Moreover, the authors also provide a complete description of the theoretic apparatus behind their approach. The choice of following the agent-based methodology seems the natural habitat for this kind of analysis. I also think that the authors carry out an extensive discussion of the results related to the Beveridge Curve and the Phillips curve and interesting insights emerge from such discussion.

However, I have identified a few major points that I think are necessary to tackle. Some of them do not necessarily imply any change in the model structure or in the paper, but the authors should still comment on them.

The most pressing issue is, in my opinion, that the model seems a replica of the model presented in Delli Gatti et al. (2011). The authors explicitly say that they rely on this framework but I have the feeling that the reader is left with no intuition about what differentiates this model from the original work by Delli Gatti et al. (2011). All the model equations are identical and even some parts of the paper are copied and pasted from the original work without even reporting them as a citation. I think this is an issue that should be properly tackled. The authors might also highlight the main contribution which, as far as I understand, relies on the ols procedure implemented towards the end of the paper.

Also, the calibration of the model deserves a bit more detailed explanation.

A second more specific aspect: the interest rate does not account for the financial fragility of the bank. Why? Moreover, instead of increasing the interstate rate, it is not clear why the bank does not stop lending at all to riskier borrowers.

Finally, is the model stock-flow consistent? The replacement procedure of firms and banks seems to suggest that the model is not SFC. Can the authors comment on in this?

As a minor point: I have found some typos here and there so the authors might want to go through the paper and fix them.