Shopping Externalities and Self-Fulfilling Unemployment Fluctuations
AbstractWe propose a novel theory of self-fulfilling unemployment fluctuations. According to this theory, a firm hiring an additional worker creates positive external effects on other firms, as a worker has more income to spend and less time to search for low prices when he is employed than when he is unemployed. In response to the increase in demand and prices, other firms enter or increase their presence in the product market by hiring additional workers. We quantify the external effects of employment on demand and prices and show that they are sufficiently strong to generate multiple rational expectations equilibria and, hence, self-fulfilling economic fluctuations.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18777.
Date of creation: Feb 2013
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Other versions of this item:
- Greg Kaplan & Guido Menzio, 2013. "Shopping Externalities and Self-Fulfilling Unemployment Fluctuations," Working Papers 1461, Princeton University, Department of Economics, Center for Economic Policy Studies..
- Greg Kaplan & Guido Menzio, 2012. "Shopping Externalities and Self-Fulfilling Unemployment Fluctuations," PIER Working Paper Archive 12-048, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-16 (All new papers)
- NEP-BEC-2013-02-16 (Business Economics)
- NEP-DGE-2013-02-16 (Dynamic General Equilibrium)
- NEP-URE-2013-02-16 (Urban & Real Estate Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- The unemployed should shop less for bargains, and they would not be unemployed
by Economic Logician in Economic Logic on 2013-01-28 15:20:00
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