Search in the product market and the real business cycle

Thomas Mathä (1) , Olivier Pierrard (1, 2)

1 Economics and Research Department
2 Department of Economics

Empirical evidence suggests that most firms operate in imperfectly competitive markets. We develop a search-matching model between wholesalers and retailers. Firms face search costs and form long-term relationships. Price bargain results in both wholesaler and retailer markups, which depend on firms' relative bargaining power. We simulate the general equilibrium model and explore the role of product market search frictions for business cycles. We conclude from the simulation exercise that incorporating product market search and improve the standard real business cycle model to reproduce US business cycle fluctuations.

Mots clés: E10; E31; E32; Business cycle; Frictions; Search; Product market; Price bargain

Domaines: Économie et finance quantitative [q-fin]

Thomas Mathä, Olivier Pierrard. Search in the product market and the real business cycle. Journal of Economic Dynamics and Control, 2011, ⟨10.1016/j.jedc.2011.03.001⟩. ⟨hal-00828982⟩