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    Search complementarities, aggregate fluctuations, and fiscal policy

    Villaverde, J.F. and Mandelman, F. and Yu, Y. and Zanetti, F. (2019) Search complementarities, aggregate fluctuations, and fiscal policy. Working Paper. Birkbeck, University of London, London, UK.

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    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.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BCAM Working Paper Series 1905. ISSN 1745-8587
    Keyword(s) / Subject(s): Aggregate uctuations, strategic complementarities, macroeconomic volatility, government spending
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Research Centre: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Administrator
    Date Deposited: 04 Sep 2019 14:47
    Last Modified: 05 Sep 2019 11:59
    URI: http://eprints.bbk.ac.uk/id/eprint/28795

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