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Working Paper
Dynamic and Stochastic Search Equilibrium
I study the business cycle properties of wage posting models with random search, for which the distributions of employment and wages play a nontrivial role for the equilibrium path. In fact, the main result of this paper is that the distribution of firms is one of the most important elements to understand business cycle fluctuations in the labor market. The distribution of firms (1) determines which shocks are relevant for the labor market, (2) implies that wage rigidity does not significantly amplify shocks, and (3) puts discipline on the relative value of the flow opportunity cost of ...