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Search Complementarities, Aggregate Fluctuations, and Fiscal Policy

Author

Listed:
  • Jesus Fernandez-Villaverde

    (University of Pennsylvania)

  • Federico Mandelman

    (Federal Reserve Bank of Atlanta)

  • Francesco Zanetti

    (University of Oxford)

  • Yang Yu

    (Shanghai University of Finance and Economics)

Abstract
We develop a quantitative business cycle model with search complementarities in the inter-firm matching process that entails multiplicity of equilibria. An active equilibrium with strong joint venture formation, large production, and low unemployment coexists with a passive equilibrium with low joint venture formation, low production, and high unemployment. Changes in fundamentals move the system between the two equilibria, generating large and persistent business cycle fluctuations. The volatility of shocks is important for the selection and duration of each equilibrium. Sufficiently adverse shocks in periods of low macroeconomic volatility trigger severe and protracted downturns. The magnitude of government intervention is critical to foster economic recovery in the passive equilibrium while it plays a limited role in the active equilibrium.

Suggested Citation

  • Jesus Fernandez-Villaverde & Federico Mandelman & Francesco Zanetti & Yang Yu, 2019. "Search Complementarities, Aggregate Fluctuations, and Fiscal Policy," 2019 Meeting Papers 380, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:380
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    References listed on IDEAS

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    Cited by:

    1. Ghassibe, Mishel & Zanetti, Francesco, 2022. "State dependence of fiscal multipliers: the source of fluctuations matters," Journal of Monetary Economics, Elsevier, vol. 132(C), pages 1-23.
    2. Fernández-Villaverde, Jesús & Mandelman, Federico & Yu, Yang & Zanetti, Francesco, 2021. "The “Matthew effect” and market concentration: Search complementarities and monopsony power," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 62-90.
    3. Leonardo Melosi & Francesco Zanetti, 2022. "The Signaling Effects of Fiscal Announcements," Working Paper Series WP 2022-38, Federal Reserve Bank of Chicago.
    4. Nalban, Valeriu & Smădu, Andra, 2021. "Asymmetric effects of uncertainty shocks: Normal times and financial disruptions are different," Journal of Macroeconomics, Elsevier, vol. 69(C).
    5. Jesus Fernandez-Villaverde & Pablo Guerron-Quintana, 2020. "Uncertainty Shocks and Business Cycle Research," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 118-166, August.
    6. Matthias S. Hertweck & Vivien Lewis & Stefania Villa, 2021. "Going the Extra Mile: Effort by Workers and Job‐Seekers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 2099-2127, December.
    7. Melosi, Leonardo & Morita, Hiroshi & Rogantini Picco, Anna & Zanetti, Francesco, 2024. "The Signaling Effects of Fiscal Announcements," The Warwick Economics Research Paper Series (TWERPS) 1512, University of Warwick, Department of Economics.
    8. Leonardo Melosi & Francesco Zanetti, 2022. "The Signaling Effects of Fiscal Announcements," Working Paper Series WP 2022-38, Federal Reserve Bank of Chicago.
    9. Giovanna Ciaffi & Matteo Deleidi & Michele Capriati, 2024. "Government spending, multipliers, and public debt sustainability: an empirical assessment for OECD countries," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 41(2), pages 521-542, July.
    10. Francesco Furlanetto & Ørjan Robstad & Pål Ulvedal & Antoine Lepetit, 2020. "Estimating hysteresis effects," Working Paper 2020/13, Norges Bank.
    11. Gabe de Bondt & Philip Vermeulen, 2021. "Business cycle duration dependence and foreign recessions," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(1), pages 1-19, February.
    12. Francesco Furlanetto & Kåre Hagelund & Frank Hansen & Ørjan Robstad, 2023. "Norges Bank Output Gap Estimates: Forecasting Properties, Reliability, Cyclical Sensitivity and Hysteresis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(1), pages 238-267, February.
    13. Le Xu & Yang Yu & Francesco Zanetti, 2024. "The Adoption and Termination of Suppliers over the Business Cycle," Economics Series Working Papers 1040, University of Oxford, Department of Economics.
    14. Xu, Le & Yu, Yang & Zanetti, Francesco, 2024. "The Adoption and Termination of Suppliers over the Business Cycle," CEPR Discussion Papers 18976, C.E.P.R. Discussion Papers.

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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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