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Abstract

We present a neoclassical model of capital accumulation with frictional labour markets. Under standard parameter values the equilibrium of the model is indeterminate and consequently displays expectations-driven business cycles - so-called endogenous business cycles. We study the properties of such cycles, and find that the model predicts the high autocorrelation in output growth and the hump-shaped impulse response of output found in US data - important features that existing endogenous real business cycle models fail to explain. The indeterminacy of the equilibrium stems from job search externalities and does not rely on increasing returns to scale as in most models. Copyright 2005 Royal Economic Society.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.0013-0133.2005.00985.x
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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 115 (2005)
Issue (Month): 502 (03)
Pages: C161-C175

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Handle: RePEc:ecj:econjl:v:115:y:2005:i:502:p:c161-c175

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Cited by:

1. Krause, Michael & Lubik, Thomas A., 2010. "Instability and indeterminacy in a simple search and matching model," Discussion Paper Series 1: Economic Studies 2010,25, Deutsche Bundesbank, Research Centre.
   
   • Michael U. Krause & Thomas A. Lubik, 2010. "Instability and indeterminacy in a simple search and matching model," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 259-272.
2. Faia, Ester, 2009. "Ramsey monetary policy with labor market frictions," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 570-581, May.
   
   • Ester Faia, 2007. "Ramsey monetary policy with labour market frictions," Working Paper Series 707, European Central Bank.
3. Ron Smith & Gylfi Zoega, 2007. "Global Factors, Unemployment Adjustment and the Natural Rate," Kiel Working Papers 1367, Kiel Institute for the World Economy.
   
   • Smith, Ron P. & Zoega, Gylfi, 2008. "Global Factors, Unemployment Adjustment and the Natural Rate," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(22), pages 1-29.
   • Smith, Ron P. & Zoega, Gylfi, 2007. "Global Factors, Unemployment Adjustment and the Natural Rate," Economics Discussion Papers 2007-48, Kiel Institute for the World Economy.
4. Ester Faia, 2006. "Optimal monetary policy rules with labor market frictions," Working Paper Series 698, European Central Bank.
   
   • Faia, Ester, 2008. "Optimal monetary policy rules with labor market frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1600-1621, May.

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