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Instability and indeterminacy in a simple search and matching model

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  • Michael U. Krause
  • Thomas A. Lubik

Abstract

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.

Suggested Citation

  • Michael U. Krause & Thomas A. Lubik, 2010. "Instability and indeterminacy in a simple search and matching model," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 259-272.
  • Handle: RePEc:fip:fedreq:y:2010:i:3q:p:259-272:n:v.96no.3
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    References listed on IDEAS

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    1. 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.
    2. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
    3. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    4. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    5. Nigar Hashimzade & Salvador Ortigueira, 2005. "Endogenous Business Cycles With Frictional Labour Markets," Economic Journal, Royal Economic Society, vol. 115(502), pages 161-175, March.
    6. 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.
    7. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
    8. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
    9. 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.
    10. 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.
    11. 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.
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    Citations

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    Cited by:

    1. Marco Guerrazzi, 2016. "Increasing Returns in Matching and Labour Market Dynamics: Comments on Indeterminacy and Search Theory," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 15(1), pages 85-88, June.
    2. Morris, Stephen D., 2017. "DSGE pileups," Journal of Economic Dynamics and Control, Elsevier, vol. 74(C), pages 56-86.
    3. Francesco Furlanetto & Nicolas Groshenny, 2012. "Matching efficiency and business cycle fluctuations," Working Paper 2012/07, Norges Bank.

    More about this item

    Keywords

    Labor market ; Business cycles;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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