Working Paper: NBER ID: w21731
Authors: Darrell Duffie; Lei Qiao; Yeneng Sun
Abstract: We develop a general and unified model in which a continuum of agents conduct directed random searches for counterparties. Our results provide the first probabilistic foundation for static and dynamic models of directed search (including the matching-function approach) that are common in search-based models of financial markets, monetary theory, and labor economics. The agents' types are shown to be independent discrete-time Markov processes that incorporate the effects of random mutation, random matching with match-induced type changes, and with the potential for enduring partnerships that may have randomly timed break-ups. The multi-period cross-sectional distribution of types is shown to be deterministic and is calculated using the exact law of large numbers.
Keywords: Directed Random Matching; Search Models; Financial Markets; Monetary Theory; Labor Economics
JEL Codes: C78; D83; E41; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| proportion of type-k agents (L85) | matching probability qkl (C52) |
| matching probability qkl (C52) | matches with type-l agents (C78) |
| proportion of type-k agents (L85) | matches with type-l agents (C78) |
| enduring partnerships (L14) | matching dynamics (C69) |
| enduring partnerships (L14) | stable matching outcomes (C78) |