Evolving Beveridge Curve dynamics

We estimate a Bayesian time-varying parameter VAR model to study evolving Beveridge Curve dynamics for the US for 1965-2022. This allows us to test the empirical relevance of different shocks in driving the Beveridge Curve dynamics, as proposed in theoretical literature. We show that demand and wage shocks play an important role in generating movements in unemployment and vacancies, in addition to the productivity and job destruction shocks that are the main focus of the existing literature. We show that the importance of different shocks has varied over time: the productivity shock is dominant from the 1960s to the mid-1990s, but thereafter the wage shock is equally important. And we show that changes in the slope of the aggregate Beveridge Curve reflect changes in the contributions of the different shocks that drive it, so part of the flattening of the aggregate Beveridge Curve in recent years reflects the growing importance of wage shocks.