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Stochastic Dynamics and Matching in the Old Keynesian Economics: A Rationale for the Shimer's Puzzle

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  • Marco Guerrazzi

Abstract

Following the Farmer’s (2008a-b, 2010) micro-foundation of the General Theory, I build a competitive search model in which output and employment are demand-driven, prices are flexible, the nominal wage is used as numeraire and agents are divided in two categories: wage and profit earners. Within this framework, I show that the model economy has a continuum of demand constrained equilibria that might be consistent with a certain degree of endogenous real wage stickiness. Moreover, calibrating and simulating the model economy in order to fit the US first-moments data, I show that this setting can provide a rationale for the Shimer’s (2005) puzzle, i.e., the relative stability of real wages in spite of the large volatility of labor market tightness.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2010/95.

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Date of creation: 18 Jan 2010
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Handle: RePEc:pie:dsedps:2010/95

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Keywords: Stochastic Dynamics; Competitive Search; Old Keynesian Economics; Demand Constrained Equilibrium; Numerical Simulations.;

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Cited by:
  1. Roger E. A. Farmer, 2012. "Confidence, Crashes and Animal Spirits," Economic Journal, Royal Economic Society, vol. 122(559), pages 155-172, 03.
  2. Marco Guerrazzi, 2011. "Expectations, Employment and Prices: A Suggested Interpretation of the New ‘Farmerian’ Economics," Discussion Papers 2011/116, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  3. Lorenzo Corsini & Pier Mario Pacini & Luca Spataro, 2010. "Workers' Choice on Pension Schemes: an Assessment of the Italian TFR Reform Through Theory and Simulations," Discussion Papers 2010/96, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  4. Marco Guerrazzi, 2010. "How to Reduce Unemployment: Notes on Macro-Economic Stability and Dynamics," Discussion Papers 2010/106, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  5. Marco Guerrazzi, 2011. "Search And Stochastic Dynamics In The Old Keynesian Economics: A Rationale For The Shimer Puzzle," Metroeconomica, Wiley Blackwell, vol. 62(4), pages 561-586, November.

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