Working Paper: NBER ID: w14907
Authors: Guido Menzio; Shouyong Shi
Abstract: In this paper, we develop a general stochastic model of directed search on the job. Like in the analogous models of random search on the job, the state of the economy in our model includes the infinite-dimensional distribution of workers across different employment states (unemployment, and employment at different wages). Unlike the analogous models of random search on the job, our model admits an equilibrium in which the agents' value and policy functions do not depend on the distribution of workers. We refer to this type of equilibrium as a Block Recursive Equilibrium. Therefore, while solving the equilibrium of a random search model in a stochastic environment is a difficult task both analytically and computationally, solving the Block Recursive Equilibrium of our model is as easy as solving a representative agent model.
Keywords: No keywords provided
JEL Codes: E32; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| directed search (C91) | agents' value and policy functions are independent of the infinite-dimensional distribution of workers across different employment states (J29) |
| directed search (C91) | simpler computational structure for equilibrium analysis (C62) |
| random search (C90) | complicates equilibrium dynamics due to dependence on worker distribution (D39) |
| directed search (C91) | allows for the computation of equilibrium in and out of steady state with ease (D58) |
| BRE (Y60) | generates worker flows between employment and unemployment and across employers (J69) |
| directed search (C91) | alters the dynamics of labor market models (J29) |