Working Paper: NBER ID: w26210
Authors: Jess Fernández-Villaverde; Federico Mandelman; Yang Yu; Francesco Zanetti
Abstract: We document five novel facts about the role of search effort in forming trading relationships among firms by combining a variety of micro and macro datasets. These facts strongly suggest the presence of search complementarities. To study the implications of these facts for aggregate fluctuations, we build a dynamic general equilibrium model, disciplined by our new firm-level evidence on search effort. The model matches key aspects of the macro and micro data that have remained unaccounted for by standard models, including the time-varying bimodal distribution of output and the strong, nonlinear propagation of shocks. Also, changes to the volatility of shocks have nonlinear effects on macroeconomic fluctuations that advance a novel interpretation of the Great Moderation. Finally, we provide a new account of the state-dependent effects of fiscal policy.
Keywords: Search Effort; Trading Relationships; Aggregate Fluctuations; Fiscal Policy
JEL Codes: C63; C68; E32; E37; E44; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trading relationships (F10) | market value (D46) |
| trading relationships (F10) | sales (M31) |
| search effort (C90) | trading relationships (stronger in connected industries) (L14) |
| search effort (C90) | trading relationships (F10) |
| search effort (C90) | market value (D46) |
| search effort (C90) | sales (M31) |
| search effort (C90) | gross industry output (L69) |