Aggregation in economies with search frictions

Nikolaos Kokonas, Paulo Santos Monteiro

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We derive an aggregation result in economies with indivisible labor supply choices and frictional labor markets, obtaining a tractable model of gross worker flows in aggregate labor markets with search frictions. Our result explores the fact that economies with non-convex choice sets and idiosyncratic shocks allow for sunspot equilibria à la Kehoe et al. (2002). We use comparative steady state analysis to demonstrate the applicability of our aggregation result. Our framework reconciles the neoclassical growth model with search frictions with a mildly procyclical participation rate and matches the gross worker flows underpinning those dynamics.
Original languageEnglish
Article number102521
JournalJournal of Mathematical Economics
Early online date30 Apr 2021
Publication statusE-pub ahead of print - 30 Apr 2021

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