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Chaotic planning solutions in the textbook model of labor market search and matching

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Author Info
Bunzel, H.
Bhattacharya, J (Tilburg University, Center for Economic Research)
Abstract

This paper demonstrates that cyclical and chaotic planning solutions are possible in the standard textbook model of search and matching in labor markets. More specifically, it takes a discretetime adaptation of the continuous-time matching economy described in Pissarides (1990, 2001), and computes the solution to the dynamic planning problem. The solution is shown to be completely characterized by a first-order, non-linear map with a unique stationary solution. Additionally, the existence of a large number of periodic and even aperiodic non-stationary solutions is shown. Even when the well-known Li-Yorke and three-period cycle conditions for chaos are violated, we are able to verify the new Mitra (2001) su.cient condition for topological chaos. The implication is that even in a simple economy characterized by search and matching frictions, an omniscient social planner may have to contend with a fairly robust and bewildering variety of possible dynamic paths.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 15.

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Date of creation: 2003
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Handle: RePEc:dgr:kubcen:200315

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J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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  2. Mumford, Karen & Smith, Peter N, 1999. " The Hiring Function Reconsidered: On Closing the Circle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(3), pages 343-64, August. [Downloadable!] (restricted)
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  3. Mitra, Tapan, 2001. "A Sufficient Condition for Topological Chaos with an Application to a Model of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 133-152, January. [Downloadable!] (restricted)
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  6. Yuan, M. & Li, W., 1999. "Dynamic Employment and Hours Effects of Government Spending Shocks," Working Papers 99-1, Bank of Canada.
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  7. Garibaldi, Pietro & Wasmer, Etienne, 2001. "Labor Market Flows and Equilibrium Search Unemployment," IZA Discussion Papers 406, Institute for the Study of Labor (IZA). [Downloadable!]
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  9. Dale T. Mortensen, 1991. "Equilibrium Unemployment Cycles," Discussion Papers 939, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  17. Boldrin, Michele & Montrucchio, Luigi, 1986. "On the indeterminacy of capital accumulation paths," Journal of Economic Theory, Elsevier, vol. 40(1), pages 26-39, October. [Downloadable!] (restricted)
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