Unemployment in an Interdependent World

Parameter

Description

Value

Source

r

Discount rate

0.33%

4% annual discount rate

ν

Parameter of external scale economies

0

Blanchard and Giavazzi (2003)

σ

Elasticity of substitution

3.8

Bernard, Redding, Schott (2007)

bi_______________

Unemployment benefits

0.4

Standard

m

Efficiency of matching function

0.636

Job finding rate=0.45; Shimer (2005) and Hall (2005)

α

Elasticity of the matching function

0.5

Hosios (1990)

β

Bargaining power

0.5

Hosios (1990)

δ____________

Rate of firm exit

0.91%

Firm turnover rate=1.8%; Bartelsmann, Haltiwanger and Scarpetta (2004)

Xi___________

Rate of match-specific separation

2.5%

Job separation rate=3.4%

φ_______

Minimum value of productivity

0.5

Arbitrary.

^γ_______________________________

Shape of Pareto Distribution

3.4

Bernard, Redding, Schott (2007)

c

Cost of posting a vacancy

1

To match θ = 0.5 (Hall, 2005)

f^e

Fixed entry cost

39.57

To match θ = 0.5 (Hall, 2005)

f____

Fixed cost of production

0.116

Average firm size = 21.8

f^x_________

Fixed foreign market access costs

0.193

Bernard, Eaton, Jensen and Kortum (2003)

τ

Iceberg trade costs

1.3

Ghironi and Melitz (2005)

L

Size of population

1

Size normalization

P1

Numeraire

%

Normalization

N

Number of countries

3

Allows for direct and indirect spill-overs