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Firm Dynamics and Random Search over the Business Cycle

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Abstract
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 can be expressed in terms of the firms’ current productivity. I introduce a numerical solution method to accommodate aggregate shocks in this environment and show that the model can replicate salient features of both firm-level data on productivity and employment and aggregate time series describing the business cycle. I use this framework to quantify the drivers of worker reallocation over the recent business cycle in Britain.

Suggested Citation

  • Richard Audoly, 2023. "Firm Dynamics and Random Search over the Business Cycle," Staff Reports 1069, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:96551
    DOI: 10.59576/sr.1069
    Note: Revised May 2024.
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    firm dynamics; search; business cycle;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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    This paper has been announced in the following NEP Reports:

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