Endogenous Disasters

American Economic Review - Tập 108 Số 8 - Trang 2212-2245 - 2018
Nicolas Petrosky-Nadeau1, Lu Zhang2, Lars‐Alexander Kuehn3
1Economic Research, Federal Reserve Bank of San Francisco, 101 Market Street, San Francisco, CA 94105 (email: )
2Fisher College of Business, The Ohio State University, 2100 Neil Avenue, Columbus, OH 43210, and National Bureau of Economic Research (email: )
3Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213 (email: )

Tóm tắt

Market economies are intrinsically unstable. The standard search model of equilibrium unemployment, once solved accurately with a globally nonlinear algorithm, gives rise endogenously to rare disasters. Intuitively, in the presence of cumulatively large negative shocks, inertial wages remain relatively high, and reduce profits. The marginal costs of hiring run into downward rigidity, which stems from the trading externality of the matching process, and fail to decline relative to profits. Inertial wages and rigid hiring costs combine to stifle job creation flows, depressing the economy into disasters. The disaster dynamics are robust to extensions to home production, capital accumulation, and recursive utility. (JEL E22, E23, E24, E32, J41, J63, N12)

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American Economic Review

Tập 108 Số 8

2212-2245

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