Establishments Dynamics, Vacancies and Unemployment: A Neoclassical Synthesis

129 Pages Posted: 28 Nov 2009 Last revised: 13 Dec 2009

See all articles by Marcelo Veracierto

Marcelo Veracierto

Federal Reserve Bank of Chicago - Research Department

Date Written: December 2009

Abstract

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

Veracierto, Marcelo, Establishments Dynamics, Vacancies and Unemployment: A Neoclassical Synthesis (December 2009). FRB of Chicago Working Paper No. 2009-14, Available at SSRN: https://ssrn.com/abstract=1514566 or http://dx.doi.org/10.2139/ssrn.1514566

Marcelo Veracierto (Contact Author)

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States
(312) 322-6595 (Phone)

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