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Instability and indeterminacy in a simple search and matching model

  • Michael U. Krause
  • Thomas A. Lubik

We demonstrate the possibility of indeterminacy and nonexistence of equilibrium dynamics in a standard business cycle model with search and matching frictions in the labor market. Our results arise for empirically plausible parameterizations and do not rely on a mechanism such as increasing returns.

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Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

Volume (Year): (2010)
Issue (Month): 3Q ()
Pages: 259-272

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Handle: RePEc:fip:fedreq:y:2010:i:3q:p:259-272:n:v.96no.3
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  1. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  2. Thomas Lubik & Michael Krause, 2003. "The (Ir)relevance of Real Wage Rigidity in the New Keynesian Model with Search Frictions," Economics Working Paper Archive 504, The Johns Hopkins University,Department of Economics.
  3. Nigar Hashimzade & Salvador Ortigueira, 2005. "Endogenous Business Cycles With Frictional Labour Markets," Economic Journal, Royal Economic Society, vol. 115(502), pages C161-C175, 03.
  4. Thomas A. Lubik, 2009. "Estimating a search and matching model of the aggregate labor market," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 101-120.
  5. Zanetti, Francesco, 2006. "Labor Market Frictions, Indeterminacy, and Interest Rate Rules," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1959-1970, October.
  6. Farmer Roger E. A. & Guo Jang-Ting, 1994. "Real Business Cycles and the Animal Spirits Hypothesis," Journal of Economic Theory, Elsevier, vol. 63(1), pages 42-72, June.
  7. Lubik, Thomas A. & Schorfheide, Frank, 2003. "Computing sunspot equilibria in linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 273-285, November.
  8. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  9. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  10. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  11. Wouter J. den Haan & Garey Ramey & Joel Watson, 1997. "Job Destruction and Propagation of Shocks," NBER Working Papers 6275, National Bureau of Economic Research, Inc.
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