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Aggregation in Economies with Search Frictions

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JournalJournal of Mathematical Economics
DateAccepted/In press - 21 Apr 2021
DateE-pub ahead of print - 30 Apr 2021
DatePublished (current) - 1 Oct 2021
Volume96
Number of pages11
Early online date30/04/21
Original languageEnglish

Abstract

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.

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

    Research areas

  • indivisibilities, sunspots, search frictions, gross worker flows

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