Operationalizing equilibrium unemployment: A general equilibrium external economies approach. (Q5958590)

This paper presents a new formulation of equilibrium unemployment that is inspired by job search or matching models. Unlike those approaches, however, this formulation does not rely on an explicit stochastic process. The matching process is incorporated through external economies in the labor market such that market expansions reduce the unemployment rate and contractions increase it. The model gives intuitively appealing results in both its static and dynamic versions with relatively little modeling overhead. Conceptually, this formulation represents a modest revision of the standard Arrow-Debreu model, and it builds on the external economies literature. To illustrate the formulation in an applied model, results are presented from an analysis of the United States' commitment to reduce carbon emissions under the Kyoto Protocol.