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Multi-market Simultaneous Search and Financial Crisis

Time:2016-12-02 10:10:02  Hits:[]

We model multi-market simultaneous search (MMSS) and find that MMSS imposes a particular type of negative externality on other searchers because offers are more likely to be rejected. Strategic complementarity gives rise to the possibility of multiple equilibria: a low-intensity equilibrium (LIE) where agents only search in “local” markets and a high-intensity equilibrium (HIE) where agents adopt MMSS. We then propose a bifurcation theory of how a large but temporary financial crisis can have long-lasting effects on the labor market. We calibrate the model to match the features of the U.S. economy. The model economy features multiple equilibria, and the HIE implies higher unemployment rate than the LIE. The model can generate a much larger, and persistent adverse changes in the labor market, in response to a transitory financial shock. It matches well the post-recession high unemployment rate of the U.S. labor market between 2009 and 2011.
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