Labor, Credit, and Goods Markets

by Petrosky-Nadeau, Wasmer

ISBN: 9780262341059 | Copyright 2017

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This book offers an integrated framework to study the theoretical and quantitative properties of economies with frictions in multiple markets. Building on analyses of markets with frictions by 2010 Nobel laureates Peter A. Diamond, Dale T. Mortensen, and Christopher A. Pissarides, which provided a new theoretical approach to search markets, the book applies this new paradigm to labor, finance, and goods markets. It shows, in particular, how frictions in different markets interact with each other.

The book first covers the main developments in the analysis of the labor market in the presence of frictions, offering a systematic analysis of the dynamics of this environment and explaining the notion of macroeconomic volatility. Then, building on the generality and simplicity of the search analysis, the book adapts it to other markets, developing the tools and concepts to analyze friction in these markets. The book goes beyond the traditional general equilibrium analysis of markets, which is often frictionless. It begins with the standard analysis of a single market, and then sequentially integrates more markets into the analysis, progressing from labor to financial to goods markets. Along the way, the book provides a number of useful results and insights, including the existence of a direct link between search frictions and the degree of volatility in the economy.

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Contents (pg. v)
Preface (pg. xi)
Guide to the book (pg. xv)
I FRICTIONS IN ONE MARKET: LABOR (pg. 1)
1 The benchmark model: a single worker firm (pg. 3)
1.1 Matching and separation in the labor market (pg. 3)
1.2 The job creation condition (pg. 6)
1.3 Wages (pg. 10)
1.4 Equilibrium (pg. 13)
1.5 Further discussion of wages (pg. 16)
1.6 Endogenous job destruction (pg. 23)
1.7 Discussion of literature and remaining issues (pg. 26)
1.8 Chapter appendix (pg. 29)
2 Business cycle properties (pg. 37)
2.1 Dynamics of the benchmark model (pg. 38)
2.2 A calibration (pg. 41)
2.3 Volatility in alternative structures (pg. 46)
2.4 Nonlinear dynamics in the labor market (pg. 50)
2.5 Discussion of the literature and remaining issues (pg. 56)
2.6 Chapter appendix (pg. 58)
3 Efficiency in the labor market (pg. 61)
3.1 Efficiency in continuous time (pg. 62)
3.2 Competitive search equilibrium (pg. 67)
3.3 A discussion of policy instruments (pg. 71)
3.4 Efficiency in a discrete time dynamic setting (pg. 75)
3.5 Discussion of the literature and remaining issues (pg. 79)
3.6 Chapter appendix (pg. 82)
4 Firm size and strategic bargaining (pg. 89)
4.1 Strategic bargaining with discrete labor (pg. 90)
4.2 The large firm matching model with one type of worker (pg. 91)
4.3 The large firm with several worker types (pg. 96)
4.4 Predetermined capital and labor with intrafirm bargaining (pg. 100)
4.5 Dynamic implications of intrafirm bargaining (pg. 101)
4.6 Discussion of the literature and remaining issues (pg. 102)
4.7 Chapter appendix (pg. 105)
II FRICTIONS IN FINANCIAL AND GOODS MARKETS (pg. 111)
5 Credit and labor market frictions: the CL model (pg. 113)
5.1 Random matching in financial markets (pg. 114)
5.2 Integrating labor and financial market frictions (pg. 115)
5.3 Efficiency and Hosios in the financial market (pg. 127)
5.4 Discussion of the literature and remaining issues (pg. 134)
5.5 Chapter appendix (pg. 135)
6 Financial multipliers and business cycles (pg. 143)
6.1 The equilibrium dynamics of the CL model (pg. 143)
6.2 A financial multiplier and the amplification of business cycles (pg. 148)
6.3 Quantitative properties (pg. 151)
6.4 Introducing shocks in financial markets (pg. 155)
6.5 Discussion of the literature and remaining issues (pg. 156)
6.6 Chapter appendix (pg. 159)
7 Goods market frictions: LG and CLG models (pg. 167)
7.1 Search in goods markets (pg. 168)
7.2 The steady-state equilibrium in the LG model (pg. 172)
7.3 Efficiency and Hosios in the LG model (pg. 180)
7.4 The CLG model (pg. 182)
7.5 Extending the CLG model to endogenous effort (pg. 186)
7.6 Discussion of the literature and remaining issues (pg. 188)
7.7 Chapter appendix (pg. 190)
8 The propagation of business cycles in CLG models (pg. 203)
8.1 The discrete time CLG model (pg. 204)
8.2 Equilibrium dynamics of the CLG model (pg. 209)
8.3 Extension to endogenous search intensity in the goods market (pg. 211)
8.4 Quantitative implications I: the propagation of productivity shocks (pg. 213)
8.5 Quantitative implications II: the propagation of demand shocks (pg. 216)
8.6 Discussion of the literature and remaining issues (pg. 220)
8.7 Concluding words (pg. 223)
8.8 Chapter appendix (pg. 223)
Bibliography (pg. 231)
Index (pg. 241)
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