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Equilibrium Unemployment Dynamics
Author(s) -
Mortensen Dale T.
Publication year - 1999
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00046
Subject(s) - economics , unemployment , aggregate (composite) , returns to scale , pareto principle , mathematical economics , general equilibrium theory , constant (computer programming) , investment (military) , production (economics) , econometrics , microeconomics , computer science , macroeconomics , operations management , materials science , politics , law , political science , programming language , composite material
The global dynamics of Pissarides' (1990) equilibrium model of aggregate unemployment are studied in the case of increasing returns to scale in production and constant returns to scale in the matching process. An equilibrium is a dynamic path for the aggregate number of matches generated by best‐response search and recruiting investment decisions under rational expectations. Necessary and sufficient conditions for multiple equilibria, including limit cycles, are derived, and illustrative examples are computed. The application of saddle‐loop bifurcation theory is a novel feature of the analysis. Since one equilibrium Pareto dominates all the others, a macroeconomic coordination problem exists.