Pusztai, P. (2016). A simple model with wealth and frictional labor markets [Master Thesis, Technische Universität Wien; IHS Wien]. reposiTUm. https://doi.org/10.34726/hss.2016.37478
A general equilibrium model with incomplete markets and directed search is developed, in order to analyze the optimal behavior of workers and comparative statics. Workers have per-period utility of the constant absolute risk aversion (CARA) type. The only form of saving is investment in vacancy creation, which connects the interest rate and job creation through the free entry condition. Because of the CARA utility, all unemployed workers search in the same submarket regardless of their wealth. The optimal saving decisions also make it possible to dene the equilibrium solely in aggregate variables without the distribution of asset levels. The model is calibrated and the existence and uniqueness of the steady state are shown for the specic parameter settings. The eects of a one-percent increase in productivity are examined. The most surprising result is that the interest rate decreases. This is caused by the fact that almost all of the increase in the value of a lled job is oset by the increase in the equilibrium wage and the lower job-lling probability decreases the expected return on a unit of savings and hence, by the free entry condition, the interest rate has to fall.
