Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/200547
Authors: 
Fernández-Villaverde, Jesús
Mandelman, Federico S.
Yu, Yang
Zanetti, Francesco
Year of Publication: 
2019
Series/Report no.: 
Working Paper No. 2019-9
Abstract: 
We develop a quantitative business cycle model with search complementarities in the inter-firm matching process that entails a multiplicity of equilibria. An active equilibrium with strong joint venture formation, large output, and low unemployment coexists with a passive equilibrium with low joint venture formation, low output, and high unemployment. Changes in fundamentals move the system between the two equilibria, generating large and persistent business cycle fluctuations. The volatility of shocks is important for the selection and duration of each equilibrium. Sufficiently adverse shocks in periods of low macroeconomic volatility trigger severe and protracted downturns. The magnitude of government intervention is critical to foster economic recovery in the passive equilibrium, while it plays a limited role in the active equilibrium.
Subjects: 
aggregate fluctuations
strategic complementarities
macroeconomic volatility
government spending
JEL: 
C63
C68
E32
E37
E44
G12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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