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Search Frictions on Product and Labor markets : Money in the Matching Function

  • Etienne, LEHMANN
  • Bruno, VAN DER LINDEN

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)

This paper builds a macroeconomic model of equilibrium unemployment in which firms persistently face difficulties in selling their production and this affects their decisions to create jobs. Due to search-frictins on the product market, equilibrium unemployment is a U-shaped function of the ratio of total demand to total supply on this market. When prices are at their Competitive Search Equilibrium values, the unemployment rate is minimized. Yet, the Competitive Search Equilibrium is not efficient. Inflation is detrimental to unemployment.

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File URL: http://sites.uclouvain.be/econ/DP/IRES/2007-13.pdf
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Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2007013.

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Length: 40
Date of creation: 01 Mar 2007
Date of revision:
Handle: RePEc:ctl:louvec:2007013
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  1. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report 218, Federal Reserve Bank of Minneapolis.
  2. Etienne Lehmann, 2012. "A Search Model of Unemployment and Inflation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(1), pages 245-266, 03.
  3. Philippe Weil & Etienne Wasmer, 2004. "The macroeconomics of credit and labor market imperfections," ULB Institutional Repository 2013/13436, ULB -- Universite Libre de Bruxelles.
  4. Cooley, Thomas F. & Quadrini, Vincenzo, 2004. "Optimal monetary policy in a Phillips-curve world," Journal of Economic Theory, Elsevier, vol. 118(2), pages 174-208, October.
  5. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, 2004. "Friedman meets Hosios: efficiency in search models of money," Working Paper 0408, Federal Reserve Bank of Cleveland.
  6. Aleksander Berentsen & Guido Menzio & Randall Wright, 2007. "Inflation and Unemployment: Lagos-Wright meets Mortensen-Pissarides," Kiel Working Papers 1334, Kiel Institute for the World Economy.
  7. Etienne Wasmer & Philippe Weil, 2004. "The Macroeconomics of Labor and Credit Market Imperfections," American Economic Review, American Economic Association, vol. 94(4), pages 944-963, September.
  8. Lehmann, Etienne & Van der Linden, Bruno, 2007. "Search Frictions on Product and Labor Markets: Money in the Matching Function," IZA Discussion Papers 2718, Institute for the Study of Labor (IZA).
  9. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  10. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
  11. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  12. Howitt, Peter, 1985. "Transaction Costs in the Theory of Unemployment," American Economic Review, American Economic Association, vol. 75(1), pages 88-100, March.
  13. Diamond, Peter A, 1984. "Money in Search Equilibrium," Econometrica, Econometric Society, vol. 52(1), pages 1-20, January.
  14. Guillaume Rocheteau & Randall Wright, 2004. "Money in search equilibrium, in competitive equilibrium, and in competitive search equilibrium," Working Paper 0405, Federal Reserve Bank of Cleveland.
  15. Shi, Shouyong, 1998. "Search for a Monetary Propagation Mechanism," Journal of Economic Theory, Elsevier, vol. 81(2), pages 314-352, August.
  16. Thomas F. Cooley & Gary D. Hansen, 1987. "The Inflation Tax in a Real Business Cycle Model," UCLA Economics Working Papers 496, UCLA Department of Economics.
  17. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October.
  19. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  20. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
  21. Diamond, Peter & Yellin, Joel, 1990. "Inventories and Money Holdings in a Search Economy," Econometrica, Econometric Society, vol. 58(4), pages 929-50, July.
  22. Miguel Molico, 2006. "The Distribution Of Money And Prices In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 701-722, 08.
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