Keywords
search and matching models
RBC
labour market policy
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Abstract
The aim of this paper is to explain the principles of operation of search and matching models and illustrate their research capabilities for the analysis of labour markets. The first part of the paper is a short historical review of the two models, and a presentation of the oldest, but also most frequently referred to in literature sequential job search model. The second part describes in detail the basic Mortensen-Pissarides (MP) model operating in a frictional environment. It begins with some theoretical assumptions, followed by a presentation of the matching technology, job creation and job destruction conditions and related to them wage determination mechanisms (Nash Bargaining Solution). Finally, a steady-state equilibrium is determined. In the third part, possible applications of the MP model to labour market analysis is presented. The main focus is put on the real business cycle (RBC) and the labour market policy (LMP). Weaknesses in performance of the MP model in those two aspects (RBS, LMP) are also discussed.References
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