SMU SOE Seminar (Nov 13, 2019): Search Complementarities, Aggregate Fluctuations, and Fiscal Policy

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ABSTRACT We develop a quantitative business cycle model with search complementarities in the interﬁrm matching process that entails a multiplicity of equilibria. An active static equilibrium with strong joint venture formation, large output, and low unemployment can coexist with a passive static equilibrium with low joint venture formation, low output, and high unemployment. Changes in fundamentals move the system between the two static equilibria, generating large and persistent business cycle ﬂuctuations. The volatility of shocks is important for the selection and duration of each static 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 static equilibrium, while it plays a limited role in the active static equilibrium. Keywords: Aggregate fluctuations, strategic complementarities, macroeconomic volatility, government spending. JEL Codes: C63, C68, E32, E37, E44, G12. Click here to view the paper. Click here to view the CV.
		PRESENTER Francesco Zanetti Oxford University
		RESEARCH FIELDS Macroeconomics Monetary Economics Applied Econometrics
		DATE: 13 November 2019 (Wednesday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903