Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions

We study the welfare costs of business cycles in a search and matching model with financial frictions. The model replicates the volatility on labor and financial markets. Business cycle costs are sizable. Indeed, the interactions between labor market and financial frictions magnify the impact of shocks via (i) a credit multiplier effect and (ii) an endogenous wage rigidity inherent to financial frictions. In addition, in a nonlinear framework, large welfare costs of fluctuations are explained by the high average unemployment and the low job finding rates with respect to their deterministic steady‐state values.     

OPTIMAL IMMIGRATION POLICY: WHEN THE PUBLIC GOOD IS RIVAL*

In this model, we characterize optimal immigration and fiscal policies in the presence of a rival public good and heterogeneous discounting. Surprisingly, even if the government is benevolent towards natives only, it is optimal to keep borders open. Indeed, in the long run, patient natives hold the whole stock of capital, while impatient immigrants work. Moreover, since capital intensity is stationary, capital per native, consumption and the public good increase with the number of (immigrant) workers. This positive effect offsets the disutility deriving from the congestion of the public good. However, when we account for the costs associated with cultural heterogeneity, we find that it is optimal to regulate immigration inflows. We also analyze the long‐run sensitivity of the optimal policy mix with respect to the fundamentals.