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Dynamics of the planning solution in the discrete-time textbook model of labor market search and matching

Author

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  • Bhattacharya, Joydeep
  • Bunzel, Helle

Abstract

This paper takes a discrete-time adaptation of the continuous−time matching economy described in Pissarides (1990, 2000), and computes the solution to the dynamic planning problem. The solution is shown to be completely characterized by a first−order, non−linear map. We show that the map admits a unique stationary solution which is dynamically unstable. Oscillatory solutions are possible but there is no possibility of periodic solutions. The planner picks the initial condition that places the economy directly on the steady state. Our results are in sharp contrast to received wisdom on out−of−steady−state dynamics in the continuous−time decentralized version of the Pissarides model where adjustment to the steady state is non−instantaneous, and overshooting of vacancies is possible.

Suggested Citation

  • Bhattacharya, Joydeep & Bunzel, Helle, 2003. "Dynamics of the planning solution in the discrete-time textbook model of labor market search and matching," ISU General Staff Papers 200311240800001189, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:200311240800001189
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    Cited by:

    1. Matthias S. Hertweck & Vivien Lewis & Stefania Villa, 2021. "Going the Extra Mile: Effort by Workers and Job‐Seekers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 2099-2127, December.
    2. Riccardo Zago, 2020. "Job Polarization, Skill Mismatch and the Great Recession," Working papers 755, Banque de France.

    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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