Search

We study the stochastic behavior of a dynamic general equilibrium model with monopolistic competition. Each seller sells his product in the consumption goods as well as the investment goods market and has market power in both. Consumers derive utility from a constant elasticity of substitution (CES) aggregate of all the consumption goods and augment their capital stock by a CES aggregate of all the investment goods. We analyze the equilibrium of this economy allowing for an endogenous determination of the number of firms and therefore of products. The principal effect we wish to highlight is the endogenous propagation and magnification of technology and preference disturbances through product space variations. (JEL E32, D43, L16), I. INTRODUCTION Microeconomic measurements of prices and costs have suggested the existence of substantial markups of price over marginal cost in many industries (see Domowitz, Hubbard, and Petersen 1988 and [...]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2007.06.002 Byline: Russell Cooper (a), John Haltiwanger (b), Jonathan L. Willis (c) Abstract: We estimate a search model to match hours, employment, vacancies and unemployment at the micro- and macrolevels. We establish a set of facts concerning the variability of unemployment and vacancies in the aggregate and the distribution of net employment growth and the comovement of hours and employment growth at the establishment level. A search model with non-convex costs of posting vacancies, establishment-level profitability shocks and a contracting framework to set hours provides a structure to understand these observations. The estimated model is able to capture both the aggregate and establishment-level facts. Author Affiliation: (a) Department of Economics, University of Texas at Austin and the NBER, Austin, TX 78712, USA (b) Department of Economics, University of Maryland and the NBER, USA (c) Research Department, Federal Reserve Bank of Kansas City, USA Article History: Received 15 September 2006; Revised 6 June 2007; Accepted 7 June 2007 Article Note: (footnote) [star] We are grateful to an anonymous referee, Robert King, Shigeru Fujita, Murat Tasci and Eran Yashiv for helpful comments. Thanks also to Stephen Nickell, Julian Messina, participants at the 2006 Swiss National Bank/JME Conference and seminar participants at the Ohio State University, Washington University of St. Louis and the Federal Reserve Banks of Chicago, Dallas, Kansas City and New York for comments and suggestions. The authors thank the NSF for financial support. The views expressed herein are solely those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System.