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Economic Quarterly

Third Quarter 2010

Instability and Indeterminacy in a Simple Search and Matching Model

Michael U. Krause and Thomas A. Lubik

We demonstrate the possibility of indeterminacy and nonexistence of equilibrium dynamics in a standard business cycle model with search and matching frictions in the labor market. Our results arise for empirically plausible parameterizations and do not rely on a mechanism such as increasing returns.

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