Establishments Dynamics, Vacancies and Unemployment: A Neoclassical Synthesis
129 Pages Posted: 28 Nov 2009 Last revised: 13 Dec 2009
Date Written: December 2009
This paper develops a Walrasian equilibrium theory of establishment dynamics and matching frictions and uses it to analyze business cycle fluctuations. Two scenarios are considered: one in which the matching process is subject to congestion externalities and another in which it is not. The paper finds that the scenario with congestion externalities replicates U.S. business cycle dynamics much better than the scenario with efficient matching. Reallocation shocks improve the empirical behavior of the model in terms of microeconomic adjustments but have little consequences for aggregate dynamics.
Keywords: firm dynamics, vacancies, unemployment, turnover, business cycles
JEL Classification: E32, J63, J64
Suggested Citation: Suggested Citation