Search Complementarities, Aggregate Fluctuations, and Fiscal Policy

Jesus Fernandez-Villaverde, Federico Mandelman, Francesco Zanetti and Yang Yu
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Yang Yu: Shanghai University of Finance and Economics

No 380, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a quantitative business cycle model with search complementarities in the inter-firm matching process that entails multiplicity of equilibria. An active equilibrium with strong joint venture formation, large production, and low unemployment coexists with a passive equilibrium with low joint venture formation, low production, and high unemployment. Changes in fundamentals move the system between the two equilibria, generating large and persistent business cycle fluctuations. The volatility of shocks is important for the selection and duration of each equilibrium. Sufficiently adverse shocks in periods of low macroeconomic volatility trigger severe and protracted downturns. The magnitude of government intervention is critical to foster economic recovery in the passive equilibrium while it plays a limited role in the active equilibrium.

Date: 2019
New Economics Papers: this item is included in nep-mac
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Related works:
Working Paper: Search Complementarities, Aggregate Fluctuations,and Fiscal Policy (2022)
Working Paper: Search Complementarities, Aggregate Fluctuations,and Fiscal Policy (2019)
Working Paper: Search Complementarities, Aggregate Fluctuations, and Fiscal Policy (2019)
Working Paper: Search Complementarities, Aggregate Fluctuations, and Fiscal Policy (2019)
Working Paper: Search Complementarities, Aggregate Fluctuations, and Fiscal Policy (2019)
Working Paper: Search Complementarities, Aggregate Fluctuations, and Fiscal Policy (2019)
Working Paper: Search Complementarities, Aggregate Fluctuations, and Fiscal Policy (2019)
Working Paper: Search Complementarities, Aggregate Fluctuations, and Fiscal Policy (2019)
Working Paper: Search Complementarities, Aggregate Fluctuations, and Fiscal Policy (2019)
Working Paper: Search Complementarities, Aggregate Fluctuations and Fiscal Policy (2018)
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