Search Complementarities, Aggregate Fluctuations, and Fiscal Policy
78 Pages Posted: 3 Sep 2019 Last revised: 12 Aug 2024
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Search Complementarities, Aggregate Fluctuations, and Fiscal Policy
Search Complementarities, Aggregate Fluctuations, and Fiscal Policy
Search Complementarities, Aggregate Fluctuations, and Fiscal Policy
Search Complementarities, Aggregate Fluctuations, and Fiscal Policy
Search Complementarities, Aggregate Fluctuations, and Fiscal Policy
Date Written: August 2019
Abstract
We document five novel facts about the role of search effort in forming trading relationships among firms by combining a variety of micro and macro datasets. These facts strongly suggest the presence of search complementarities. To study the implications of these facts for aggregate fluctuations, we build a dynamic general equilibrium model, disciplined by our new firm-level evidence on search effort. The model matches key aspects of the macro and micro data that have remained unaccounted for by standard models, including the time-varying bimodal distribution of output and the strong, nonlinear propagation of shocks. Also, changes to the volatility of shocks have nonlinear effects on macroeconomic fluctuations that advance a novel interpretation of the Great Moderation. Finally, we provide a new account of the state-dependent effects of fiscal policy.
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