Indeterminacy and Search Theory

48 Pages Posted: 26 Jan 2004

Date Written: September 2003

Abstract

This paper investigates a dynamic general equilibrium model with search. In particular, search externalities are reflected by an increasing returns to scale matching function, which may imply an indeterminate equilibrium. Hence, the model is capable to generate business fluctuations, driven by self-fulfilling belief, characterised by unemployment persistence. A numerical simulation shows that the degree of externalities needed for indeterminacy is not too far from existing empirical estimates and the implied dynamics of employment is richer then that of standard RBC models with search.

Keywords: Search Theory, Matching Function, Indeterminacy, General Equilibrium

JEL Classification: E10, E24, J64

Suggested Citation

Giammarioli, Nicola, Indeterminacy and Search Theory (September 2003). Available at SSRN: https://ssrn.com/abstract=457570 or http://dx.doi.org/10.2139/ssrn.457570

Nicola Giammarioli (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany