 Search Complementarities, Aggregate Fluctuations, and Fiscal PolicyJesus Fernandez-Villaverde, Federico Mandelman, Yang Yu and Francesco Zanetti No 2019-9, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Abstract: We develop a quantitative business cycle model with search complementarities in the inter-firm matching process that entails a multiplicity of equilibria. An active equilibrium with strong joint venture formation, large output, and low unemployment coexists with a passive equilibrium with low joint venture formation, low output, and high unemployment. {{p}} 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. Keywords: aggregate fluctuations; strategic complementarities; macroeconomic volatility; government spending (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:2019-09 Ordering information: This working paper can be ordered from DOI: 10.29338/wp2019-09 Access Statistics for this paper More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC. |
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