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Instability and indeterminacy in a simple search and matching model

  • Krause, Michael
  • Lubik, Thomas A.

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

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2010,25.

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Date of creation: 2010
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Handle: RePEc:zbw:bubdp1:201025
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  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Roger E.A. Farmer & Jang Ting Guo, 1992. "Real Business Cycles and the Animal Spirits Hypothesis," UCLA Economics Working Papers 680, UCLA Department of Economics.
  8. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
  9. 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.
  10. Nigar Hashimzade & Salvador Ortigueira, 2005. "Endogenous Business Cycles With Frictional Labour Markets," Economic Journal, Royal Economic Society, vol. 115(502), pages C161-C175, 03.
  11. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
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