Endogenous Separations in a Matching Model
Paper No' CEPDP0035:
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The paper develops a model in which employment is an enduring rent-sharing relationship. In each period rents are subject to a transient disturbance, and the parties weigh the future stream of benefits against current dis-benefits. The analysis suggests a strong correlation between real interest rates and aggregate unemployment because high real interest rates makes the employment relationship more fragile. This correlation is demonstrated for a number of time series of aggregate national data.