Shopping Externalities and Self-Fulfilling Unemployment Fluctuations

Greg Kaplan and Guido Menzio

No 18777, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a novel theory of self-fulfilling unemployment fluctuations. According to this theory, a firm hiring an additional worker creates positive external effects on other firms, as a worker has more income to spend and less time to search for low prices when he is employed than when he is unemployed. In response to the increase in demand and prices, other firms enter or increase their presence in the product market by hiring additional workers. We quantify the external effects of employment on demand and prices and show that they are sufficiently strong to generate multiple rational expectations equilibria and, hence, self-fulfilling economic fluctuations.

JEL-codes: D11 D21 D43 E32 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-bec, nep-dge and nep-ure
Note: EFG
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Citations: View citations in EconPapers (46)

Published as Greg Kaplan & Guido Menzio, 2016. "Shopping Externalities and Self-Fulfilling Unemployment Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 124(3), pages 000 - 000.

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Related works:
Journal Article: Shopping Externalities and Self-Fulfilling Unemployment Fluctuations (2016)
Working Paper: Shopping Externalities and Self-Fulfilling Unemployment Fluctuations (2013)
Working Paper: Shopping Externalities and Self-Fulfilling Unemployment Fluctuations (2012)
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