Stochastic Dynamics and Matching in the Old Keynesian Economics: A Rationale for the Shimer's Puzzle

Marco Guerrazzi

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: Following the Farmer's (2008a-b, 2010) micro-foundation of the General Theory, I build a competitive search model in which output and employment are demand-driven, prices are flexible, the nominal wage is used as numeraire and agents are divided in two categories: wage and profit earners. Within this framework, I show that the model economy has a continuum of demand constrained equilibria that might be consistent with a certain degree of endogenous real wage stickiness. Moreover, calibrating and simulating the model economy in order to fit the US first-moments data, I show that this setting can provide a rationale for the Shimer's (2005) puzzle, i.e., the relative stability of real wages in spite of the large volatility of labor market tightness.

Keywords: Stochastic Dynamics; Competitive Search; Old Keynesian Economics; Demand Constrained Equilibrium; Numerical Simulations. (search for similar items in EconPapers)
JEL-codes: E12 E24 J63 J64 (search for similar items in EconPapers)
Date: 2010-01-18
New Economics Papers: this item is included in nep-hpe, nep-lab, nep-mac and nep-pke
Note: ISSN 2039-1854
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:pie:dsedps:2010/95

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