A Comment on the Economics of Labor Adjustment: Mind the Gap: Evidence from a Monte Carlo Experiment: Reply

摘要

Our response to Bayer consists of four points. First, the results reported in CW for the estimation of the static gap model are sensitive to the dispersion of aggregate shocks. Second, even when there is no apparent nonlinearity in a quadratic hazard specification, we find that the non-linearity is present once we condition parameters of the quadratic hazard on realizations of the aggregate shocks. Third, in a more realistic exercise in which the researcher does not observe the gap nor the cross-sectional distribution, following the procedure of CE, we find evidence of non-linearity in the estimated aggregate hazard. This is true even when the dispersion of shocks does not produce a nonlinearity using a simple quadratic hazard and the observed static gap. Fourth, we find that the CEH procedure continues to suffer from omitted variable bias under alternative specifications of the shock process.