Search Theories and Aggregate Demand 1

Annalisa Cristini, Piero Ferri, Anna Variato, Annalisa Cristini
This paper analyzes search models within a framework of aggregate demand shocks and dominated by uncertainty. In this context, agents are bounded rational while wages are determined by some markup mechanism. Differently from the canonical search theories, unemployment is not only frictional but it can be dynamically determined by an unexpected fall in aggregate demand. Furthermore, by introducing stochastic productivity heterogeneity, a "systemic unemployment", due to both demand and supply
more » ... cts, can be generated. The model is cast in dynamic terms, while the main results are obtained by means of simulations.