Collaborative Research: Heterogeneity and Structural Duration Dependence in Macroeconomics

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This project is funded by NSF awards 1559459 and 155922. The research team seeks to test models of duration dependence in macroeconomics. The work focuses directly on how to analyze duration data from labor markets, including the duration/length of spells of unemployment. Some workers experience long-term unemployment, while others who are also unemployed rapidly find new jobs. Similarly, some people stay with the same employer for many years (a long duration on the job) while others switch to a new job after a short stay. The PIs want compare different models of the processes that lead to these durations. They want to build new and tractable models and also plan to estimate and test the models to see which model is best supported by the data. The research will help us understand the nature of long-term unemployment, and it will benefit the U.S. economy by giving us a better basis for predicting the effects of certain kinds of public policy (such as extending unemployment benefits) on the economy.The team plans to examine the nature of duration dependence in existing reduced-form models, such as the proportional hazard and the accelerated failure times models with unobserved heterogeneity. They also devlop new structural models, including a stopping time model, to offer a more economic interpretation of duration data, while allowing for arbitrary unobserved heterogeneity. They plan to use large existing data sets on labor market outcomes and on prices in order to estimate and test these models. The research has the potential to be useful in a wide variety of applications, since duration models have been used to study many different economic phenomena, including the determinants of business investment, housing turnover, nominal price stickiness, and the purchase of consumer durables as well as others.