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This paper proves the existence of a non‐stationary equilibrium in the canonical search‐and‐matching model with heterogeneous agents. Non‐stationarity entails that the number and characteristics of unmatched agents evolve endogenously over time. An equilibrium exists under minimal regularity conditions and for both paradigms considered in the literature: transferable and nontransferable utility. To address potential discontinuities in match opportunities across types, our analysis introduces a generalized Schauder fixed‐point theorem suitable for models with discontinuous value functions.

This article analyses the effectiveness of hiring credits. Using comprehensive administrative data, we show that the French hiring credit, implemented during the Great Recession, had significant positive employment effects and no effects on wages. Relying on the quasi-experimental variation in labour cost triggered by the hiring credit, we estimate a structural search and matching model. Simulations of counterfactual policies show that the effectiveness of the hiring credit relied to a large extent on three features: it was non-anticipated, temporary and targeted at jobs with rigid wages. We estimate that the cost per job created by permanent hiring credits, either countercyclical or time-invariant, in an environment with flexible wages would have been much higher.

PurposeThis paper aims to study the phenomenon known as “house price dispersion”, one of the most important distinctive features of housing markets. House price dispersion refers to the phenomenon of selling two houses with very similar attributes and in near locations at the same time but at very different prices.Design/methodology/approachThis theoretical paper makes use of a search and matching model of the housing market. The search and matching models are the benchmark models of the “matching” markets, such as the labour market and the housing market, where trade is a decentralised, uncoordinated and time-consuming economic activity.FindingsUnlike the previous related literature that attributes to the heterogeneity of buyers and sellers a significant part of the price volatility, in this paper, the house price dispersion depends on the housing tenure status of home-seekers in the house search process. Indeed, in the presence of different housing tenure status of home-seekers, the house search process leads to different types of matching. In turn, this implies different surpluses (the sum of the net gains of the parties involved in the trade), and eventually, different surpluses produce different prices of equilibrium.Research limitations/implicationsAn interesting research agenda for future works would be an extension of the model to study the effect of “online housing search” on the house search and matching process, and thus, on the house price dispersion.Practical implicationsThe main practical implication of this work is that the house price dispersion is an inherent phenomenon in the house search and matching process.Originality/valueNone of the existing and related works of research have considered how to take advantage of the search and matching approach to deal with the phenomenon known as “house price dispersion”, without relying on the ex ante heterogeneity of the parties but looking at the “core” of the house search and matching process.

The paper specifies a simple search and matching model of the labor market and studies how well the model can describe aggregate Croatian labor market dynamics. The model developed is a discrete-time search and matching model with convex vacancy posting costs and two types of shocks: productivity and separation shocks. The model is estimated on unemployment and vacancy data during the period from 2012 to 2020 by using Bayesian methods. The model fits the data well and the estimation shows that productivity shocks are the main driving force of the fluctuations in the labor market, especially for the case of vacancies and output, while the separation shock process accounts for a large percentage of unemployment fluctuations.

We develop and estimate a general equilibrium search and matching model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, we do not impose wage inertia. Instead we derive wage inertia from our specification of how firms and workers negotiate wages. Our model outperforms a variant of the standard New Keynesian Calvo sticky wage model. According to our estimated model, there is a critical interaction between the degree of price stickiness, monetary policy, and the duration of an increase in unemployment benefits.

In this paper, we re-examine the efficiency of participation with heterogeneous workers in a search-matching model with bargained wages and free entry. Assuming that firms hire their best applicants, we show that participation is always too low. The reason for this is a hold-up phenomenon: to be active, a worker must pay the entire search cost whereas part of the gain from this investment goes to the firm. As a consequence, introducing a (small) minimum wage raises participation, job creation, and employment. Therefore, net aggregate income of the economy is increased.

This paper studies the impact of time-varying idiosyncratic risk at the establishment level on unemployment fluctuations over 1972-2009. I build a tractable directed search model with firm dynamics and time-varying idiosyncratic volatility. The model allows for endogenous separations, entry and exit, and job-to-job transitions. I show that the model can replicate salient features of the microeconomic behavior of firms and that the introduction of volatility improves the fit of the model for standard business cycle moments. In a series of counterfactual experiments, I show that time-varying risk is important to account for the magnitude of fluctuations in aggregate unemployment for past U.S. recessions. Though the model can account for about 40% of the total increase in unemployment for the 2007-2009 recession, uncertainty alone is not sufficient to explain the magnitude and persistence of unemployment during that episode.

I discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate. I show that job creation in the model is influenced by wages in new matches. I summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model's key predictions. Therefore, explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages. I discuss a modification of the model, based on fixed matching costs, that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches.

Unemployed households’ access to unsecured revolving credit more than tripled over the last three decades. This article analyses how both cyclical fluctuations and trend increases in credit access impact the business cycle. The main quantitative result is that credit expansions and contractions have contributed to moderately deeper and more protracted recessions over the last 40 years. As more individuals obtained credit from 1977 to 2010, cyclical credit fluctuations affected a larger share of the population and became more important determinants of employment dynamics. Even though business cycles are more volatile, newborns strictly prefer to live in the economy with growing, but fluctuating, access to credit markets.

This article develops a search and matching model of mergers and acquisitions (M&A) and uses it to evaluate the implications of merger activity for aggregate economic outcomes. The theory is consistent with a rich set of facts on U.S. M&A, including sorting among merging firms, a substantial merger premium and serial acquisition. It provides a sharp link between these facts and the nature of merger gains. At the micro-level, both complementarities between merging firms and productivity improvements of target firms are important in generating gains. At the macro-level, the model suggests a significant beneficial impact of M&A on aggregate outcomes—the contribution to steady state output is 14% and 4% for consumption—which occurs through the reallocation of resources across firms and equilibrium effects on firm selection and new entrepreneurship. Nevertheless, the economy is not efficient, suggesting a scope for policy improvements—a simple flat tax on M&A can raise steady state consumption as much as 2% relative to the laissez-faire equilibrium. In short, the boundaries of the firm can matter for macroeconomic outcomes.