TRANSITION MODELS IN A NONSTATIONARY ENVIRONMENT

An alternative form of the proportional hazard model is proposed. It a llows one to introduce correlation between exit rates at the same (cal endar) time for different individuals. One can, in the context of this model, still allow for, and estimate, duration effects. These should be parametrized. These modifications to the original Cox model are pos sible by reversing the roles of duration and calendar time. It is argu ed that flexibility with respect to the effects of these macro process es is of particular relevance in economic models. An example using Dut ch data on labor market transitions illustrates the idea that to ignor e calendar time effects may have severe consequences for the estimatio n of duration dependence.