Integrating search in macroeconomics: the defining years

Samuel Danthine and Michel De Vroey

No 2014013, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: Our paper studies two attempts at integrating unemployment in macroeconomics. The first, due to Diamond, consists in a search model exhibiting multiple equilibria. The second is due to Andolfatto and Merz who, more or less simultaneously, were able to integrate the matching function in RBC modeling. As a common thread of these two attempts is to be based on the search approach as developed in labor economics, we recount the birth and further development of the search paradigm in a first section. We then analyze Diamond’s, Andolfatto’s and Merz’s contributions. Our interest lies specifically in how they made their way in the development of the field. We show that Diamond’s model, which ambitioned to rival Lucas’s Expectations and the Neutrality of Money model, did not live up to its author’s expectations. We propose an interpretation as to the reason this was so. As to Andolfatto and Merz, while their project was less ambitious, we show that they were able to establish what they were striving at, namely an harmonious integration of one particular search model within the RBC paradigm. The price to be paid, however, was to abandon several constitutive traits of the search approach.

Keywords: Search and Matching models; Diamond; Lucas; Real Business Cycle models; Unemployme (search for similar items in EconPapers)
JEL-codes: B21 B40 D83 E24 J64 (search for similar items in EconPapers)
Pages: 28
Date: 2014-04-24
New Economics Papers: this item is included in nep-dge, nep-his and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2014013

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