Abstract
Search theory has provided a foundation for the way many policymakers think about the macroeconomics of the labor market—including a general belief in the existence of a “natural” rate of unemployment, a recognition of the role that fictional unemployment plays in determining the natural rate, and a reliance on some form of the Phillips curve model of the inflation process. We outline the major contributions of the theory, but also argue that theoretical developments have far outpaced their practical relevance to economic policy. We conclude that researchers should direct their efforts towards developing stronger empirical connections between theory and the practical workings of the macroeconomy, testing models more rigorously, examining in more detail the role of the demand side of the market, and analyzing the movements of nominal quantities.
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Fallick, B.C., Wascher, W.L. (2002). Macroeconomic Policy and the Theory of Job Search. In: Woodbury, S.A., Davidson, C. (eds) Search Theory and Unemployment. Recent Economic Thought Series, vol 76. Springer, Dordrecht. https://doi.org/10.1007/978-94-010-0235-6_9
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DOI: https://doi.org/10.1007/978-94-010-0235-6_9
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