Search Frictions on Product and Labor Markets: Money in the Matching Function

Etienne Lehmann () and Bruno Van der Linden

No 2718, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper builds a macroeconomic model of equilibrium unemployment in which firms persistently face difficulties in selling their production and this affects their decisions to create jobs. Due to search-frictions on the product market, equilibrium unemployment is a U-shaped function of the ratio of total demand to total supply on this market. When prices are at their Competitive Search Equilibrium values, the unemployment rate is minimized. Yet, the Competitive Search Equilibrium is not efficient. Inflation is detrimental to unemployment.

Keywords: equilibrium unemployment; inflation; matching; demand constraints (search for similar items in EconPapers)
JEL-codes: E12 E24 E31 J63 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2007-03
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

Published - published in: Macroeconomic Dynamics, 2010, 10(1), 56-92

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https://docs.iza.org/dp2718.pdf (application/pdf)

Related works:
Journal Article: SEARCH FRICTIONS ON PRODUCT AND LABOR MARKETS: MONEY IN THE MATCHING FUNCTION (2010)
Working Paper: Search Frictions on Product and Labor markets: Money in the Matching Function (2007)
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