Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-06T03:47:47.625Z Has data issue: false hasContentIssue false
  • English
  • Français

THE INTEGRATION OF SEARCH IN MACROECONOMICS: TWO ALTERNATIVE PATHS

Published online by Cambridge University Press:  05 October 2017

Samuel Danthine  and
Michel De Vroey
Samuel Danthine
Affiliation:
ENSAI;
Michel De Vroey
Affiliation:
IRES, University of Louvain.
Get access Rights & Permissions [Opens in a new window]

Abstract

Our paper analyzes and compares two attempts at integrating unemployment in macroeconomics. The first, due to Peter Diamond, consists in a search model exhibiting multiple equilibria and wherein cycles may be produced. The second is due to David Andolfatto and Monika Merz, who, more or less simultaneously, constructed models enabling the integration of the matching function into RBC modeling. In the first sections, we present the methodology upon which our paper is based—Axel Leijonhufvud’s decision-tree insight—and briefly describe these three economists’ motivations and the context in which they were working. We continue with recounting the birth and further development of the search paradigm upon which Diamond’s, Andolfatto’s, and Merz’s attempts were based. These preliminaries settled, we address the heart of the paper, the critical analysis of their respective contributions. Our interest lies specifically in how they made their way in the development of the field. We explain why Diamond’s model, which ambitioned to rival Robert Lucas’s explanation of business fluctuations, did not live up to its author’s expectations. Andolfatto’s and Merz’s project was less ambitious, yet their model became an established component of the RBC program—but at the price of abandoning several constitutive traits of the search approach.

Type
Articles
Information
Journal of the History of Economic Thought , Volume 39 , Issue 4 , December 2017 , pp. 523 - 548
Copyright
Copyright © The History of Economics Society 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Albrecht, James. 2011. “Search Theory: The 2010 Nobel Memorial Prize in Economic Sciences.” Scandinavian Journal of Economics 113 (6): 237–259.CrossRefGoogle Scholar
Albrecht, James, and Axell, Bo. 1984. “An Equilibrium Model of Search Unemployment.” Journal of Political Economy 92 (5): 822–840.CrossRefGoogle Scholar
Andolfatto, David. 1996. “Business Cycles and Labor-Market Search.” American Economic Review 86 (1): 112–132.Google Scholar
Batyra, Anna, and De Vroey, Michel. 2012. “From One to Many Islands: The Emergence of Search and Matching Models.” The Bulletin of Economic Research 64: 393–414.CrossRefGoogle Scholar
Burdett, Kenneth, and Judd, Kenneth L.. 1983. “Equilibrium Price Distributions.” Econometrica 51 (4): 955–970.CrossRefGoogle Scholar
Burdett, Kenneth, and Mortensen, Dale T.. 1998. “Wage Differentials, Employer Size, and Unemployment.” International Economic Review 39 (2): 257–273.CrossRefGoogle Scholar
Butters, Gerard R. 1977. “Equilibrium Distributions of Sales and Advertising Prices.” Review of Economic Studies 44 (3): 465–491.CrossRefGoogle Scholar
Christiano, Lawrence J., Eichanbaum, Martin, and Evans, Christopher. 1999. “Monetary Policy Shocks: What Have We Learned and to What End?” In Woodford, Mark and Taylor, John, eds., Handbook of Macroeconomics. Volume 1A. Amsterdam, New York, and Oxford: Elsevier Science, North-Holland, pp. 65–148.CrossRefGoogle Scholar
Danthine, Samuel, and De Vroey, Michel. 2016. “The Integration of Search in Macroeconomics: Interviews with David Andolfatto, Peter Diamond and Monika Merz.” IRES, University of Louvain, Discussion Paper 2016–13.Google Scholar
De Vroey, Michel. 2011. “Lucas on the Relationship between Ideology and Theory.” Economics, The Open-Access, Open-Assessment E-Journal 5: 2011–4. http://dx.doi.org/10.5018/economics-ejournal.ja.2011-4. Accessed 8 July 2017.CrossRefGoogle Scholar
De Vroey, Michel. 2016. A History of Macroeconomics from Keynes to Lucas and Beyond. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Diamond, Peter A. 1971. “A Model of Price Adjustment.” Journal of Economic Theory 3 (2): 156–168.CrossRefGoogle Scholar
Diamond, Peter A. 1981. “Mobility Costs, Frictional Unemployment, and Efficiency.” Journal of Political Economy 89 (4): 789–812.CrossRefGoogle Scholar
Diamond, Peter A. 1982a. “Aggregate-Demand Management in Search Equilibrium.” Journal of Political Economy 90 (5): 881–894.CrossRefGoogle Scholar
Diamond, Peter A. 1982b. “Wage Determination and Efficiency in Search Equilibrium.” Review of Economic Studies 49 (2): 217–227.CrossRefGoogle Scholar
Diamond, Peter A. 1984a. A Search-Equilibrium Approach to the Micro Foundations of Macroeconomics. The Wicksell Lectures 1982. Cambridge, MA: MIT Press.Google Scholar
Diamond, Peter A. 1984b. “Money in Search Equilibrium.” Econometrica 52 (1): 1–20.CrossRefGoogle Scholar
Diamond, Peter A. 2010. Peter A. Diamond—biographical. https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2010/diamond-bio.html. Accessed 22 August 2017.Google Scholar
Diamond, Peter A. 2011. “Unemployment, Vacancies and Wages.” American Economic Review 101 (4): 1045–1072.CrossRefGoogle Scholar
Diamond, Peter A., and Fudenberg, Drew. 1989. “Rational Expectations Business Cycles in Search Equilibrium.” Journal of Political Economy 97 (3): 606–619.CrossRefGoogle Scholar
Diamond, Peter A., and Maskin, Eric S.. 1979. “An Equilibrium Analysis of Search and Breach of Contract, 1. Steady States.” Bell Journal of Economics 10 (1): 282–316.CrossRefGoogle Scholar
Dotsey, Michael, and King, Robert G.. 1987. “Rational Expectations Business Cycle Models.” In Eatwell, John, Milgate, Murray, and Newman, Peter, eds., The New Palgrave: A Dictionary of Economics. Volume 1. New York: Stockton Press, pp. 302–310.Google Scholar
Fisher, Franklin M. 1989. Disequilibrium Foundations of Equilibrium Economics Cambridge: Cambridge University Press.Google Scholar
Farmer, Roger E. A. 2010. Expectation, Employment and Prices. Oxford: Oxford University Press.Google Scholar
Gronau, Reuben. 1971. “Information and Frictional Unemployment.” American Economic Review 61 (3): 290–330.Google Scholar
Hansen, Gary D. 1985. “Indivisible Labor and the Business Cycle.” Journal of Monetary Economics 16 (3): 309–327.CrossRefGoogle Scholar
Hosios, Arthur J. 1990. “On the Efficiency of Matching and Related Models of Search and Unemployment.” Review of Economic Studies 57 (2): 279–298.CrossRefGoogle Scholar
Howitt, Peter. [1986] 1990. “The Keynesian Recovery.” In The Keynesian Recovery and Other Essays. New York: Philip Allan, pp. 70–85.Google Scholar
Keynes, John M. 1936. The General Theory of Employment, Interest and Money. London: Macmillan.Google Scholar
Kydland, Finn. and Prescott, Edward. 1982. “Time to Build and Aggregate Fluctuations.” Econometrica 50 (6): 1345–1370.CrossRefGoogle Scholar
Kiyotaki, Nobuhiro, and Wright, Randall. 1989. “On Money as a Medium of Exchange.” Journal of Political Economy 97 (4): 927–954.CrossRefGoogle Scholar
Kiyotaki, Nobuhiro, and Wright, Randall. 1991. “A Contribution to the Pure Theory of Money.” Journal of Economic Theory 53 (2): 215–235.CrossRefGoogle Scholar
Kiyotaki, Nobuhiro, and Wright, Randall. 1993. “A Search-Theoretic Approach to Monetary Economics.” American Economic Review 83 (1): 63–77.Google Scholar
Leijonhufvud, Axel. 1994. “Hicks, Keynes, and Marshall.” In Hagemann, Harald and Hamouda, O. F., eds., The Legacy of Hicks. London: Routledge, pp. 147–162.Google Scholar
Lucas, Robert E. Jr. 1972. “Expectations and the Neutrality of Money.” Journal of Economic Theory 4 (2): 188–209.CrossRefGoogle Scholar
Lucas, Robert E. Jr., and Prescott, Edward C.. 1974. “Equilibrium Search and Unemployment.” Journal of Economic Theory 7 (2): 103–124.CrossRefGoogle Scholar
MacMinn, Richard D. 1980. “Search and Market Equilibrium.” Journal of Political Economy 88 (2): 308–327.CrossRefGoogle Scholar
Mankiw, N. Gregory, and Romer, David, eds. 1991. New Keynesian Economics. Two volumes. Cambridge, MA: MIT Press.Google Scholar
McCall, John J. 1970. “Economics of Information and Job Search.” Quarterly Journal of Economics 84 (1): 113–126.CrossRefGoogle Scholar
Merz, Monika. 1995. “Search in the Labor Market and the Real Business Cycle.” Journal of Monetary Economics 36: 269–300.CrossRefGoogle Scholar
Merz, Monika. 2002. “Search Theory Rediscovered: Recent Developments in the Macroeconomics of the Labor Market.” In Woodbury, Stephen A. and Davidson, Carl, eds., Search Theory and Unemployment: Theory, Empiricism, and Policy. Recent Economic Thought Series, 76. Lancaster: Kluwer, pp. 17–44.CrossRefGoogle Scholar
Mortensen, Dale T. 1970. “A Theory of Wage and Employment Dynamics.” In Phelps, E., ed., Microeconomic Foundations of Employment and Inflation Theory. New York: W. W. Norton, pp. 167–211.Google Scholar
Mortensen, Dale T. 1978. “Specific Capital and Labor Turnover.” Bell Journal of Economics 9 (2): 572–586.CrossRefGoogle Scholar
Mortensen, Dale T. 1982a. “Property Rights and Efficiency in Matching, Racing, and Related Games.” American Economic Review 72 (5): 968–979.Google Scholar
Mortensen, Dale T. 1982b. “The Matching Process as a Noncooperative Bargaining Game.” In McCall, J., ed., Economics of Information and Uncertainty. Chicago: University of Chicago Press, pp. 233–258.Google Scholar
Mortensen, Dale T. 1992a. “Equilibrio de Búsqueda y Ciclos Económicos Reales.” Cuadernos Economicos 51 (2): 151–173.Google Scholar
Mortensen, Dale T. 1992b. “Search Theory and Macroeconomics: A Review Essay.” Journal of Monetary Economics 29 (1): 163–167.CrossRefGoogle Scholar
Mortensen, Dale T. 2011. “Markets with Search Friction and the DMP Model.” American Economic Review 101 (June): 1073–1091.CrossRefGoogle Scholar
Mortensen, Dale T., and Pissarides, Christopher A.. 1994. “Job Creation and Job Destruction in the Theory of Unemployment.” Review of Economic Studies 61 (3): 397–415.CrossRefGoogle Scholar
Moscarini, Giuseppe, and Wright, Randall. 2007. “An Interview with Peter Diamond.” Macroeconomic Dynamics 11: 543–565.CrossRefGoogle Scholar
Okun, Arthur M. 1981. Prices and Quantity: A Macroeconomic Analysis. Washington: The Brookings Institute.Google Scholar
Phelps, Edmund S. 1972. Inflation Policy and Unemployment Theory: The Cost–Benefit Approach to Monetary Planning. New York: W. W. Norton.Google Scholar
Pigou, Arthur C. 1933. The Theory of Unemployment. New York: Routledge.Google Scholar
Pissarides, Christopher A. 1979. “Job Matchings with State Employment Agencies and Random Search.” Economic Journal 89 (356): 818–833.CrossRefGoogle Scholar
Pissarides, Christopher A. 1984. “Search Intensity, Job Advertising and Efficiency.” Journal of Labor Economics 2 (1): 128–143.CrossRefGoogle Scholar
Pissarides, Christopher A. 1985. “Short-Run Equilibrium Dynamics of Unemployment, Vacancies, and Real Wages.” American Economic Review 75 (4): 676–690.Google Scholar
Pissarides, Christopher A. 1987. “Search, Wage Bargains and Cycles.” Review of Economic Studies 54 (3): 473–483.CrossRefGoogle Scholar
Pissarides, Christopher A. 1990. Equilibrium Unemployment Theory. Oxford: Basil Blackwell. Second edition: Cambridge, MA: MIT Press, 2000.Google Scholar
Pissarides, Christopher A. 2011. “Equilibrium in the Labour Market with Search Frictions.” American Economic Review 101 (June): 1092–1105.CrossRefGoogle Scholar
Rogerson, Richard. 1988. “Indivisible Labor, Lotteries and Equilibrium.” Journal of Monetary Economics 21 (1): 3–16.CrossRefGoogle Scholar
Rogerson, Richard, Shimer, Robert, and Wright, Randall. 2005. “Search-Theoretic Models of the Labor Market: A Survey.” Journal of Economic Literature 43 (4): 959–988.CrossRefGoogle Scholar
Snowdon, Brian, and Vane, Howard R.. 2005. Modern Macroeconomics: Its Origins, Development and Current State. Cheltenham: Edward Elgar.Google Scholar
Stigler, George J. 1961. “The Economics of Information.” Journal of Political Economy 69 (3): 213–225.CrossRefGoogle Scholar
Stigler, George J. 1962. “Information in the Labor Market.” Journal of Political Economy 70 (5): 94–105.CrossRefGoogle Scholar
Woodford, Michael D. 1999. “Revolution and Evolution in Twentieth Century Macroeconomics.” Mimeo. http://www.columbia.edu/∼mw2230/. Accessed 8 July 2017.Google Scholar
Wright, Randall. 1986. “Job Search and Cyclical Unemployment.” Journal of Political Economy 94 (1): 38–55.CrossRefGoogle Scholar
Yashiv, Eran. 2007. “Labor Search and Matching in Macroeconomics.” European Economic Review 51 (8): 1859–1895.CrossRefGoogle Scholar