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Search Frictions on Product and Labor markets : Money in the Matching Function

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  • Etienne, LEHMANN
  • Bruno, VAN DER LINDEN

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)

Abstract

This paper builds a macroeconomic model of equilibrium unemployment in which firms persistently face difficulties in selling their production and this affects their decisions to create jobs. Due to search-frictins on the product market, equilibrium unemployment is a U-shaped function of the ratio of total demand to total supply on this market. When prices are at their Competitive Search Equilibrium values, the unemployment rate is minimized. Yet, the Competitive Search Equilibrium is not efficient. Inflation is detrimental to unemployment.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2007013.

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Length: 40
Date of creation: 01 Mar 2007
Date of revision:
Handle: RePEc:ctl:louvec:2007013

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Keywords: Equilibrium unemployment; Matching; Inflation; Demand Constraints;

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References

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  1. Diamond, Peter A, 1984. "Money in Search Equilibrium," Econometrica, Econometric Society, vol. 52(1), pages 1-20, January.
  2. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  3. Etienne Wasmer & Philippe Weil, 2004. "The Macroeconomics of Labor and Credit Market Imperfections," American Economic Review, American Economic Association, vol. 94(4), pages 944-963, September.
  4. Lehmann, Etienne & Van der Linden, Bruno, 2007. "Search Frictions on Product and Labor Markets: Money in the Matching Function," IZA Discussion Papers 2718, Institute for the Study of Labor (IZA).
  5. Etienne Lehmann, 2007. "A Search Model of Unemployment and Inflation”," Working Papers 2007-16, Centre de Recherche en Economie et Statistique.
  6. Randall Wright & Guillame Rocheteau, 2003. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Levine's Bibliography 666156000000000302, UCLA Department of Economics.
  7. Philippe Weil & Etienne Wasmer, 2004. "The macroeconomics of credit and labor market imperfections," ULB Institutional Repository 2013/13436, ULB -- Universite Libre de Bruxelles.
  8. Howitt, Peter, 1985. "Transaction Costs in the Theory of Unemployment," American Economic Review, American Economic Association, vol. 75(1), pages 88-100, March.
  9. Randall Wright & Guido Menzio & Aleksander Berentsen, 2007. "Inflation and unemployment: Lagos-Wright meets Mortensen-Pissarides," 2007 Meeting Papers 237, Society for Economic Dynamics.
  10. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
  11. Thomas F. Cooley & Gary D. Hansen, 1987. "The Inflation Tax in a Real Business Cycle Model," UCLA Economics Working Papers 496, UCLA Department of Economics.
  12. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  13. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October.
  14. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report 218, Federal Reserve Bank of Minneapolis.
  15. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, 2007. "Friedman Meets Hosios: Efficiency in Search Models of Money," Economic Journal, Royal Economic Society, vol. 117(516), pages 174-195, 01.
  16. Cooley, Thomas F. & Quadrini, Vincenzo, 2004. "Optimal monetary policy in a Phillips-curve world," Journal of Economic Theory, Elsevier, vol. 118(2), pages 174-208, October.
  17. Diamond, Peter & Yellin, Joel, 1990. "Inventories and Money Holdings in a Search Economy," Econometrica, Econometric Society, vol. 58(4), pages 929-50, July.
  18. Shi Shouyong, 1997. "Search for a Monetary Propagation Mechanism," Working Papers 966, Queen's University, Department of Economics.
  19. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  20. Shouyong Shi, 1996. "A Divisible Search Model of Fiat Money," Working Papers 930, Queen's University, Department of Economics.
  21. Miguel Molico, 2006. "The Distribution Of Money And Prices In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 701-722, 08.
  22. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
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Citations

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Cited by:
  1. Lehmann, Etienne & Van der Linden, Bruno, 2007. "Search Frictions on Product and Labor Markets: Money in the Matching Function," IZA Discussion Papers 2718, Institute for the Study of Labor (IZA).
  2. Pascal Michaillat & Emmanuel Saez, 2013. "Aggregate Demand, Idle Time, and Unemployment," NBER Working Papers 18826, National Bureau of Economic Research, Inc.
  3. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h481p4obg is not listed on IDEAS
  4. Cardullo, Gabriele, 2011. "The distributive and welfare effects of product and labour market deregulation," Labour Economics, Elsevier, vol. 18(2), pages 205-217, April.
  5. Pascal Michaillat & Emmanuel Saez, 2013. "A Model of Aggregate Demand and Unemployment," CEP Discussion Papers dp1235, Centre for Economic Performance, LSE.
  6. Etienne Wasmer, 2011. "A steady-state model of a non-walrasian economy with three imperfect markets," Sciences Po publications info:hdl:2441/5l6uh8ogmqi, Sciences Po.

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