Determinate Indeterminacy: Keynesian Search with Imperfect Competition
Year: 2026
Type: preprint
Abstract: In this paper, we extend our results from a previous paper Akbari et al (2025) to allow for imperfectly competitive firms. Using the Shapley-Shubik market game framework to allow for large firms with significant market power, we show that the Keynes-Farmer simulations generated under the assumption that entry level labor markets are incomplete differ significantly from those obtained in the competitive setting. We compute the resulting recursive rational-expectations equilibrium for a 58-period lifecycle economy using a neural-network equilibrium solver adapted from our competitive benchmark. In particular, the volatility of GDP under labor market standard deviations that deliver competitive volatilities on the order of 3% is an order of magnitude less variable under oligopoly. This provides a novel explanation for the observed moderation in GDP volatility in the U.S. in the immediate post-WWII period and again in the 1980s following deregulation. The imperfectly competitive simulations also deliver state-contingent distributions of output, returns to capital, bond prices and stock prices which exhibit multi-modalities during downturns that are not apparent in the competitive setting.
Source: KiltHub Repository
DOI: 10.1184/r1/33484378
Language: English
Topic: Economic theories and models
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7225342055