Search Complementarities, Aggregate Fluctuations, and Fiscal Policy

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

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We develop a quantitative business cycle model with search complementarities in the inter-?rm matching process that entails a multiplicity of equilibria. An active static equilibrium with strong joint venture formation, large output, and low unemployment can coexist with a passive static equilibrium with low joint venture formation, low output, and high unemployment. Changes in fundamentals move the system between the two static equilibria, generating large and persistent business cycle ?uctuations. The volatility of shocks is important for the selection and duration of each static equilibrium. Su?ciently 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 static equilibrium, while it plays a limited role in the active static equilibrium.

Keywords: Aggregate Auctuations; strategic complementarities; macroeconomic volatility; government spending (search for similar items in EconPapers)
JEL-codes: C63 C68 E32 E37 E44 G12 (search for similar items in EconPapers)
Pages: 82 pages
Date: 2019-09-10
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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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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