New publication | Solving the Diamond–Mortensen–Pissarides model: A hybrid perturbation approach
This newly published paper, written by Matthias Hänsel, a PhD student at SSE, proposes a Hybrid Perturbation method to accurately solve Search-and-Matching models. An application to the Hagedorn and Manovskii (2008) model demonstrates its effectiveness in capturing non-linear model dynamics.
Search-and-Matching models à la Diamond–Mortensen–Pissarides play an important role in business cycle research. Perturbation methods are commonly used to analyse these frameworks but often yield inaccurate solutions. Addressing this issue, this paper proposes a solution involving Hybrid Perturbation and a Change of Variable. It argues that this approach maintains simplicity while significantly improving accuracy. Through application to the Hagedorn and Manovskii (2008) model, the paper demonstrates the effectiveness of this method, achieving high accuracy and closely mirroring the business cycle dynamics generated by recent projection approaches.
