Search in the product market and the real business cycle

Mathä, Thomas Y.; Pierrard, Olivier

doi:10.1016/j.jedc.2011.03.001

Cited by 14 publications

(18 citation statements)

References 40 publications

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“…The number of trades y on the product market is given by a matching function with constant returns 7 The seminal contribution to this literature is Diamond (1982a), and recent models include Arseneau and Chugh (2007), Mathä andPierrard (2011), Gourio andRudanko (2014), and Bai, Rios-Rull and Storesletten (2012).…”

Section: Iia Assumptionsmentioning

confidence: 99%

Aggregate Demand, Idle Time, and Unemployment

Michaillat¹,

Saez²

2013

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This paper develops a model of unemployment fluctuations. The model keeps the architecture of the general-disequilibrium model of Barro and Grossman (1971) but takes a matching approach to the labor and product markets instead of a disequilibrium approach. On the product and labor markets, both price and tightness adjust to equalize supply and demand. Since there are two equilibrium variables but only one equilibrium condition on each market, a price mechanism is needed to select an equilibrium. We focus on two polar mechanisms: fixed prices and competitive prices. When prices are fixed, aggregate demand affects unemployment: with a higher aggregate demand, firms find more customers; this reduces the idle time of their employees and thus increases their labor demand; and this reduces unemployment. We combine the predictions of the model and empirical measures of product market tightness, labor market tightness, output, and employment to assess the sources of labor market fluctuations in the US. First, we find that the product market and labor market tightnesses fluctuate a lot, which implies that the fixed-price equilibrium describes the data better than the competitive-price equilibrium. Next, we find that labor market tightness and employment are positively correlated, which suggests that labor market fluctuations are mostly due to labor demand shocks and not to labor supply or mismatch shocks. Last, we find that product market tightness and output are positively correlated, which suggests that the labor demand shocks mostly reflect aggregate demand shocks and not technology shocks.

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Section: Iia Assumptionsmentioning

confidence: 99%

Aggregate Demand, Idle Time, and Unemployment

Michaillat¹,

Saez²

2013

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“…The seminal contribution to this literature is Diamond (1982a), and recent models include Arseneau and Chugh (2007), Mathä and Pierrard (2011), Gourio and Rudanko (2014), and Bai, Rios-Rull, and Storesletten (2012). are quite different from ours, especially because they focus on economies with flexible prices in which dynamics play a key role.…”

Section: Introductionmentioning

confidence: 99%

Aggregate Demand, Idle Time, and Unemployment

Michaillat

Saez

2014

SSRN Journal

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“…The seminal contribution to this literature isDiamond (1982a), and recent models includeArseneau and Chugh (2007),Mathä and Pierrard (2011),Gourio and Rudanko (2014), and Bai, Rios-Rull and Storesletten (2012).8Hall (2008), denHaan (2013), and Petrosky-Nadeau and Wasmer (2011) also take a matching approach to the product and labor markets, but they do not explicitly represent and study aggregate demand.…”

mentioning

confidence: 99%

Aggregate Demand, Idle Time, and Unemployment *

Michaillat

Saez

2015

The Quarterly Journal of Economics

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This article develops a model of unemployment fluctuations. The model keeps the architecture of the general-disequilibrium model of Barro and Grossman (1971) but takes a matching approach to the labor and product markets instead of a disequilibrium approach. On the product and labor markets, both price and tightness adjust to equalize supply and demand. Since there are two equilibrium variables but only one equilibrium condition on each market, a price mechanism is needed to select an equilibrium. We focus on two polar mechanisms: fixed prices and competitive prices. When prices are fixed, aggregate demand affects unemployment as follows. An increase in aggregate demand leads firms to find more customers. This reduces the idle time of their employees and thus increases their labor demand. This in turn reduces unemployment. We combine the predictions of the model and empirical measures of product market tightness, labor market tightness, output, and employment to assess the sources of labor market fluctuations in the United States. First, we find that product market tightness and labor market tightness fluctuate a lot, which implies that the fixed-price equilibrium describes the data better than the competitive-price equilibrium. Next, we find that labor market tightness and employment are positively correlated, which suggests that the labor market fluctuations are mostly due to labor demand shocks and not to labor supply or mismatch shocks. Last, we find that product market tightness and output are positively correlated, which suggests that the labor demand shocks mostly reflect aggregate demand shocks and not technology shocks.

show abstract

Search in the product market and the real business cycle

Cited by 14 publications

References 40 publications

Aggregate Demand, Idle Time, and Unemployment

Aggregate Demand, Idle Time, and Unemployment

Aggregate Demand, Idle Time, and Unemployment

Aggregate Demand, Idle Time, and Unemployment *

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