Advanced Search
MyIDEAS: Login to save this paper or follow this series

Shopping Externalities and Self-Fulfilling Unemployment Fluctuations

Contents:

Author Info

  • Greg Kaplan

    (Princeton University)

  • Guido Menzio

    (University of Pennsylvania)

Abstract

We propose a novel theory of self-ful?lling ?uctuations in the labor market. A ?rm employing an additional worker generates positive externalities on other ?rms, because employed workers have more income to spend and have less time to shop for low prices than unemployed workers. We quantify these shopping externalities and show that they are su¢ ciently strong to create strategic complementarities in the employment decisions of di¤erent ?rms and to generate multiple rational expectations equilibria. Equilibria di¤er with respect to the agents?(rational) expectations about future unemployment. We show that negative shocks to the agents?expectations lead to ?uctuations in vacancies, unemployment, labor productivity and the stock market that closely resemble those observed in the US during the Great Recession.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.princeton.edu/ceps/workingpapers/234kaplan.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Princeton University, Department of Economics, Center for Economic Policy Studies. in its series Working Papers with number 1461.

as in new window
Length:
Date of creation: May 2013
Date of revision:
Handle: RePEc:pri:cepsud:234kaplan

Contact details of provider:
Postal: Princeton, NJ 08544-1021
Phone: (609) 258-5765
Fax: (609) 258-5398
Email:
Web page: http://www.princeton.edu/~ceps/index.htm
More information through EDIRC

Related research

Keywords: vacancies; unemployment; labor productivity; stock market; Great Recession;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  3. Krueger, Alan B. & Mueller, Andreas I., 2008. "Job Search and Unemployment Insurance: New Evidence from Time Use Data," IZA Discussion Papers 3667, Institute for the Study of Labor (IZA).
  4. Benhabib, J. & Farmer, R.E.A, 1991. "Indeterminacy and Increasing Returns," Papers 165, Cambridge - Risk, Information & Quantity Signals.
  5. Christopher A. Sims & Tao Zha, 2004. "Were there regime switches in U.S. monetary policy?," Working Paper 2004-14, Federal Reserve Bank of Atlanta.
  6. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Melvin Stephens, Jr., 2003. "Job Loss Expectations, Realizations, and Household Consumption Behavior," NBER Working Papers 9508, National Bureau of Economic Research, Inc.
  8. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  9. Jess Benhabib & Pengfei Wang & Yi Wen, 2012. "Sentiments and Aggregate Demand Fluctuations," NBER Working Papers 18413, National Bureau of Economic Research, Inc.
  10. Roger E.A. Farmer & Jang Ting Guo, 1992. "Real Business Cycles and the Animal Spirits Hypothesis," UCLA Economics Working Papers 680, UCLA Department of Economics.
  11. Roger E. A. Farmer & Daniel F. Waggoner & Tao Zha, 2010. "Generalizing the Taylor Principle: Comment," American Economic Review, American Economic Association, vol. 100(1), pages 608-17, March.
  12. Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, sunspots, and automatic stabilizers," Working Paper Series, Macroeconomic Issues WP-96-16, Federal Reserve Bank of Chicago.
  13. Kiyotaki, Nobuhiro, 1988. "Multiple Expectational Equilibria under Monopolistic Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 695-713, November.
  14. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
  15. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
  16. Melvin Stephens, 2001. "The Long-Run Consumption Effects Of Earnings Shocks," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 28-36, February.
  17. Boldrin, Michele & Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A dynamic equilibrium model of search, production, and exchange," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 723-758.
  18. Mark Aguiar & Erik Hurst & Loukas Karabarbounis, 2013. "Time Use during the Great Recession," American Economic Review, American Economic Association, vol. 103(5), pages 1664-96, August.
  19. Samuel Bentolila & Andrea Ichino, 2008. "Unemployment and consumption near and far away from the Mediterranean," Journal of Population Economics, Springer, vol. 21(2), pages 255-280, April.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. 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
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Michaillat, Pascal & Saez, Emmanuel, 2013. "A Model of Aggregate Demand and Unemployment," CEPR Discussion Papers 9609, C.E.P.R. Discussion Papers.
  2. Zhen Huo & Jose-Victor Rios-Rull, 2013. "Paradox of thrift recessions," Staff Report 490, Federal Reserve Bank of Minneapolis.
  3. Greg Kaplan & Guido Menzio, 2013. "The Research Agenda: Greg Kaplan and Guido Menzio on the Macroeconomics of Bargain Hunting," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 14(2), November.
  4. Greg Kaplan & Guido Menzio, 2014. "The Morphology of Price Dispersion," PIER Working Paper Archive 14-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Emmanuel Saez & Pascal Michaillat, 2013. "A Theory of Aggregate Supply and Aggregate Demand as Functions of Market Tightness with Prices as Parameters," 2013 Meeting Papers 1216, Society for Economic Dynamics.
  6. Alberto Cavallo & Brent Neiman & Roberto Rigobon, 2014. "The Price Impact of Joining a Currency Union: Evidence from Latvia," NBER Working Papers 20225, National Bureau of Economic Research, Inc.
  7. Sniekers, F.J.T., 2013. "Endogenous Beveridge cycles and the volatility of unemployment," CeNDEF Working Papers 13-12, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  8. Bonilla, Roberto & Kiraly, Francis, 2013. "Marriage wage premium in a search equilibrium," Labour Economics, Elsevier, vol. 24(C), pages 107-115.
  9. Martin Gervais & Nir Jaimovich & Henry E. Siu & Yaniv Yedid-Levi, 2013. "Technological Learning and Labor Market Dynamics," NBER Working Papers 19767, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pri:cepsud:234kaplan. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Long).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.