We study steady state and business cycle properties of a model with heterogeneous firms and on-the-job search in the spirit of Moscarini and Postel-Vinay (2012). We extend the setup by including capital in the production function and show how this change influences model properties. The model is solved using a novel numerical method, projection within perturbation, which uses Chebyshev polynomial approximation and Clenshaw-Curtis quadrature for dealing with heterogeneity. We analyze worker flows between firms, distribution of firm size and wages, and study how productivity and other shocks affect them. When we introduce a working capital channel into the model we find that costly borrowing that finances firms' wage and vacancy bill shifts the distribution of firms to the right.

keywords: job search, business cycle, unemployment, computation method, heterogeneous firms

JEL codes: , ,

publication year: 2016

language : English

thematic categories : ,

publishing series : IBS Working Paper

publication number : 07/2016

ISSN : 2451-4373

additional information: This research was financed by the Polish National Science Centre grant following decision number: DEC-2011/03/B/HS4/05895.

Jacek Suda

National Bank of Poland

Marek Antosiewicz

Institute for Structural Research (IBS)

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