DMP model

This paper develops a sufficient-statistic formula for the unemployment gap. The formula depends on the elasticity of the Beveridge curve, cost of unemployment, and recruiting cost. In the United States the unemployment gap is countercyclical and often positive.

This paper proposes a matching model of the labor market with job rationing: unemployment does not disappear in the absence of matching frictions. In recessions, job rationing drives the rise of unemployment, whereas matching frictions contribute little to it.