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Increasing returns in matching and labour market dynamics: Comments on indeterminacy and search theory

Guerrazzi, Marco (2015): Increasing returns in matching and labour market dynamics: Comments on indeterminacy and search theory.

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Abstract

In this note I discuss the condition for indeterminacy in the context of search models with increasing returns in the matching technology. Building on the theoretical framework set forth by Giammarioli (2003), I argue that increasing returns with respect to vacancies at the aggregate level is only a necessary requirement for indeterminate equilibrium paths. Specifically, I show that sunspot equilibria can actually be obtained by imposing an additional condition between the private and the social elasticity of the matching function with respect to unemployment.

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