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Working Paper
Tariffs and Goods-Market Search Frictions
Krolikowski, Pawel; McCallum, Andrew H. (2025-01-16)
We study uniform tariffs in a general equilibrium dynamic model with search frictions between heterogeneous exporting producers and importing retailers. We analytically characterize unilateral import tariffs that maximize domestic welfare. Search frictions lower these tariffs because of market thickness effects, which reinforce aggregate production nonconvexities. A calibration using 2016 U.S. and Chinese data suggests that optimal U.S. unilateral and Nash equilibrium tariffs with baseline search frictions are 10 ppt. below those in a model with reduced search frictions. Changes in welfare in ...
Working Papers , Paper 25-03

Working Paper
Targeted Search in Matching Markets
Restrepo-Echavarria, Paulina; Tutino, Antonella; Cheremukhin, Anton (2013-08-23)
We propose a parsimonious matching model where a person's choice of whom to meet endogenizes the degree of randomness in matching. The analysis highlights the interaction between a productive motive, driven by the surplus attainable in a match, and a strategic motive, driven by reciprocity of interest of potential matches. We find that the interaction between these two motives differs with preferences?vertical versus horizontal?and that this interaction implies that preferences recovered using our model can look markedly different from those recovered using a model where the degree of ...
Working Papers , Paper 2014-35

Working Paper
Deadlines and Matching
Baughman, Garth (2016-02-24)
Deadlines and fixed end dates are pervasive in matching markets including school choice, the market for new graduates, and even financial markets such as the market for federal funds. Deadlines drive fundamental non-stationarity and complexity in behavior, generating significant departures from the steady-state equilibria usually studied in the search and matching literature. I consider a two-sided matching market with search frictions where vertically differentiated agents attempt to form bilateral matches before a deadline. I give conditions for existence and uniqueness of equilibria, and ...
Finance and Economics Discussion Series , Paper 2016-14

Working Paper
Goods-Market Frictions and International Trade
McCallum, Andrew H.; Krolikowski, Pawel (2016-12-23)
We present a tractable framework that embeds goods-market frictions in a general equilibrium dynamic model with heterogeneous exporters and identical importers. These frictions arise because it takes time and expense for exporters and importers to meet. We show that search frictions lead to an endogenous fraction of unmatched exporters, alter the gains from trade, endogenize entry costs, and imply that the competitive equilibrium does not generally result in the socially optimal number of searching firms. Finally, ignoring search frictions results in biased estimates of the effect of tariffs ...
Working Papers (Old Series) , Paper 1635

Working Paper
Goods-Market Frictions and International Trade
McCallum, Andrew H.; Krolikowski, Pawel (2017-05-23)
We present a tractable framework that embeds goods-market frictions in a general equilibrium dynamic model with heterogeneous exporters and identical importers. These frictions arise because it is time consuming and expensive for exporters and importers to meet. We show that search frictions lead to an endogenous fraction of unmatched exporters, alter the gains from trade, endogenize entry costs, and imply that the competitive equilibrium does not generally result in the socially optimal number of searching firms. Finally, ignoring search frictions results in biased estimates of the effect of ...
International Finance Discussion Papers , Paper 1207

Working Paper
A theory of targeted search
Tutino, Antonella; Restrepo-Echavarria, Paulina; Cheremukhin, Anton A. (2014-02-13)
We present a theory of targeted search, where people with a finite information processing capacity search for a match. Our theory explicitly accounts for both the quantity and the quality of matches. It delivers a unique equilibrium that resides in between the random matching and the directed search outcomes. The equilibrium that emerges from this middle ground is inefficient relative to the constrained Pareto allocation. Our theory encompasses the outcomes of the random matching and the directed search literature as limiting cases.
Working Papers , Paper 1402

Report
Trade dynamics in the market for federal funds
Lagos, Ricardo; Afonso, Gara (2012-02-01)
We use minute-by-minute daily transaction-level payments data to document the cross-sectional and time-series behavior of the estimated prices and quantities negotiated by commercial banks in the interbank market. We study the frequency and volume of trade, the size distribution of loans, the distribution of bilateral rates, and the intraday dynamics of the reserve balances held by commercial banks. We find evidence of the importance of the liquidity provision achieved by commercial banks that act as de facto intermediaries of funds.
Staff Reports , Paper 549

Working Paper
Trade Dynamics in the Market for Federal Funds
Lagos, Ricardo; Afonso, Gara (2014-03-27)
We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they meet, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive and normative questions: What are the determinants of the fed funds rate? How does the market reallocate funds? Is the market able to achieve an efficient reallocation of funds? We also use the model for theoretical and quantitative analyses of policy issues facing modern central banks.
Working Papers , Paper 710

Report
Firm Dynamics and Random Search over the Business Cycle
Audoly, Richard (2023-08-01)
I build a tractable random search model with firm dynamics, on-the-job search, and aggregate shocks. Multi-worker firms make recruitment decisions, choose whether to enter or exit the market, and design wage contracts. Tractability is obtained by showing that, under a set of assumptions on the recruitment technology, the decisions of workers and firms depend on the firms’ current productivity. I confront the model to salient business cycle moments on the reallocation of workers across the firm productivity distribution derived from firm-level data that the model successfully replicates. I ...
Staff Reports , Paper 1069

Working Paper
Firms as Learning Environments: Implications for Earnings Dynamics and Job Search
Gregory, Victoria (2020-08-14)
This paper demonstrates that heterogeneity in firms’ promotion of human capital accumulation is an important determinant of life-cycle earnings inequality. I use administrative micro data from Germany to show that different establishments offer systematically different earnings growth rates for their workers. This observation suggests that that the increase in inequality over the life cycle reflects not only inherent worker variation, but also differences in the firms that workers happen to match with over their lifetimes. To quantify this channel, I develop a life-cycle search model with ...
Working Papers , Paper 2020-036

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