Open AccessDynamic and Stochastic Search Equilibrium
Author(s) -
Camilo Morales-Jiménez
Publication year - 2022
Publication title -
finance and economics discussion series
Language(s) - English
Resource type - Journals
eISSN - 2767-3898
pISSN - 1936-2854
DOI - 10.17016/feds.2022.018
Subject(s) - business cycle , economics , wage , rigidity (electromagnetism) , distribution (mathematics) , econometrics , path (computing) , flow (mathematics) , microeconomics , labour economics , computer science , mathematics , macroeconomics , engineering , geometry , programming language , mathematical analysis , structural engineering
I study the business cycle properties of wage posting models with random search, for which the distributions of employment and wages play a nontrivial role for the equilibrium path. In fact, the main result of this paper is that the distribution of firms is one of the most important elements to understand business cycle fluctuations in the labor market. The distribution of firms (1) determines which shocks are relevant for the labor market, (2) implies that wage rigidity does not significantly amplify shocks, and (3) puts discipline on the relative value of the flow opportunity cost of employment. To assess these type of models quantitatively, I propose a new algorithm that finds the steady state and computes transitional dynamics rapidly. Hence, integrating wage posting models with random search to larger models becomes possible (and easy) with this new algorithm.