Aggregate Unemployment in Krusell and Smith’s Economy: A Note

Marco Del Negro
Working Paper 2005-6
March 2005

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Using data on workers’ flows into and out of employment, unemployment, and not-in-the-labor-force, I construct transition probabilities between “employment” and “unemployment” that can be used in the calibration of economies such as Krusell and Smith’s (1998). I show that calibration in Krusell and Smith has some counterfactual features. Yet the gains from adopting alternative calibrations in terms of matching the data are not very large, unless one assumes that the duration of unemployment spells is well above what is usually assumed in the literature.

JEL classification: J21

Key words: calibration, labor market flows

The author would like to thank Ann Ferris for kindly providing the data and Dirk Krueger, Josep Pijoan-Mas, Richard Rogerson, and Gianluca Violante for helpful comments. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please address questions regarding content to Marco Del Negro, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, NE, Atlanta, Georgia 30309-4470,, 404-498-8561.