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Macroeconomic Theory and Policy | © Sanjay K. Chugh 1 Department of Applied Economics Johns Hopkins University Economics 602 Macroeconomic Theory and Policy Assignment 9 Suggested Solutions Professor Sanjay Chugh Spring 2018 Due: April 16, 2018 at 12:00noon EST (Note: all submissions must be submitted via Blackboard in PDF)Search Effort, Recruiting Intensity, and the Beveridge Curve. Suppose the aggregate matching function in any period thas the Cobb-Douglas form  1,)(ttttttttm err vesvs, in which 0tedenotes “search effort” and 0trdenotes “recruiting intensity.” Our discussions on the search and matching framework implicitly assumed that 1tter. In this question, neither tenor trnecessarily needs to be equal to one. The presence of search effort and recruiting intensity leads to a generalized definition of labor-market tightness tttttrvesthat includes both teand tr. The presence of search effort and recruiting intensity also slightly changes the probabilities of successful job matches and successful new hires: the probability that one unit of effective searchttesleads to a successful job match is (0,1)FINDtp, and the probability that one unit of vacancy intensity ttrvleads to a successful new hire is (0,1)FINDtq. The definitions of other variables are: the real wage is wt, the labor income tax rate is (0,1)t, the cost of posting a new job vacancy is 0, the exogenous separation rate for employment relationships , and the unemployment benefit is ueb.

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