Aggregation in Economies with Search Frictions

TY - JOUR

T1 - Aggregation in Economies with Search Frictions

AU - Kokonas, Nikolaos

AU - Santos Monteiro, Paulo

N1 - © 2021 Elsevier B.V. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy.

PY - 2021/10/1

Y1 - 2021/10/1

N2 - We derive an aggregation result in economies with indivisible labor supply choices and frictional labor markets, obtaining a tractable model of gross worker flows in aggregate labor markets with search frictions. Our result explores the fact that economies with non-convex choice sets and idiosyncratic shocks allow for sunspot equilibria a la Kehoe et al. (2002). We use comparative steady state analysis to demonstrate the applicability of our aggregation result. Our framework reconciles the neoclassical growth model with search frictions with a mildly procyclical participation rate and matches the gross worker flows underpinning those dynamics.

AB - We derive an aggregation result in economies with indivisible labor supply choices and frictional labor markets, obtaining a tractable model of gross worker flows in aggregate labor markets with search frictions. Our result explores the fact that economies with non-convex choice sets and idiosyncratic shocks allow for sunspot equilibria a la Kehoe et al. (2002). We use comparative steady state analysis to demonstrate the applicability of our aggregation result. Our framework reconciles the neoclassical growth model with search frictions with a mildly procyclical participation rate and matches the gross worker flows underpinning those dynamics.

KW - indivisibilities

KW - sunspots

KW - search frictions

KW - gross worker flows

U2 - 10.1016/j.jmateco.2021.102521

DO - 10.1016/j.jmateco.2021.102521

M3 - Article

SN - 0304-4068

VL - 96

JO - Journal of Mathematical Economics

JF - Journal of Mathematical Economics

M1 - 102521

ER -