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Aggregation in economies with search frictions

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  • Kokonas, Nikolaos
  • Monteiro, Paulo Santos

Abstract

We derive an aggregation result in economies with indivisible labor supply choices and frictional labor markets, obtaining a tractable model of gross worker flows in aggregate labor markets with search frictions. Our result explores the fact that economies with non-convex choice sets and idiosyncratic shocks allow for sunspot equilibria à la Kehoe et al. (2002). We use comparative steady state analysis to demonstrate the applicability of our aggregation result. Our framework reconciles the neoclassical growth model with search frictions with a mildly procyclical participation rate and matches the gross worker flows underpinning those dynamics.

Suggested Citation

  • Kokonas, Nikolaos & Monteiro, Paulo Santos, 2021. "Aggregation in economies with search frictions," Journal of Mathematical Economics, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:mateco:v:96:y:2021:i:c:s0304406821000847
    DOI: 10.1016/j.jmateco.2021.102521
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    Cited by:

    1. Nikolaos Kokonas & Paulo Santos Monteiro, 2023. "Self-fulfilling labor wedge fluctuations and unemployment insurance," Discussion Papers 2313, Centre for Macroeconomics (CFM).

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