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Stochastic Dynamics and Matching in the Old Keynesian Economics: A Rationale for the Shimer's Puzzle

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  • Marco Guerrazzi

Abstract

Following the Farmer's (2008a-b, 2010) micro-foundation of the General Theory, I build a competitive search model in which output and employment are demand-driven, prices are flexible, the nominal wage is used as numeraire and agents are divided in two categories: wage and profit earners. Within this framework, I show that the model economy has a continuum of demand constrained equilibria that might be consistent with a certain degree of endogenous real wage stickiness. Moreover, calibrating and simulating the model economy in order to fit the US first-moments data, I show that this setting can provide a rationale for the Shimer's (2005) puzzle, i.e., the relative stability of real wages in spite of the large volatility of labor market tightness.

Suggested Citation

  • Marco Guerrazzi, 2010. "Stochastic Dynamics and Matching in the Old Keynesian Economics: A Rationale for the Shimer's Puzzle," Discussion Papers 2010/95, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  • Handle: RePEc:pie:dsedps:2010/95
    Note: ISSN 2039-1854
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    File URL: https://www.ec.unipi.it/documents/Ricerca/papers/2010-95.pdf
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    Cited by:

    1. Roger E. A. Farmer, 2012. "Confidence, Crashes and Animal Spirits," Economic Journal, Royal Economic Society, vol. 122(559), pages 155-172, March.
    2. Marco Guerrazzi, 2010. "How to Reduce Unemployment: Notes on Macro-Economic Stability and Dynamics," Discussion Papers 2010/106, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    3. Marco Guerrazzi, 2012. "Expectations, Employment and Prices: A Suggested Interpretation of the New «Farmerian» Economics," Politica economica, Società editrice il Mulino, issue 3, pages 369-395.
    4. Lorenzo Corsini & Pier Mario Pacini & Luca Spataro, 2010. "Workers' Choice on Pension Schemes: an Assessment of the Italian TFR Reform Through Theory and Simulations," Discussion Papers 2010/96, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    5. Marco Guerrazzi & Paolo Gelain, 2015. "A demand-driven search model with self-fulfilling expectations: the new 'Farmerian' framework under scrutiny," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 81-104, January.
    6. Marco Guerrazzi, 2011. "Search And Stochastic Dynamics In The Old Keynesian Economics: A Rationale For The Shimer Puzzle," Metroeconomica, Wiley Blackwell, vol. 62(4), pages 561-586, November.

    More about this item

    Keywords

    Stochastic Dynamics; Competitive Search; Old Keynesian Economics; Demand Constrained Equilibrium; Numerical Simulations.;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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