when no one can find an exchange that will improve her position

http://www.princeton.edu/economics/seminar-schedule-by-prog/macros11/pdfs/FPFU032411.pdf

this paper suggest we attach a search model to the jobs market to end the following short cut to policy

"The product-market-only models that have been the exclusive mode of analysis of the

zero lower bound to date make no claim to describe an equilibrium. Rather, they view the

bound that keeps the interest rate too high as causing excess supply in the current product

market. In the excess-supply view, rms could hire unemployed workers for a wage low

enough to make production pro table. For reasons not explained in the models, firms are

unable to nd customers for the resulting output. The diagnosis that these models describe

an outcome that is not an equilibrium would be going too far. Rather, the models lack

su cient description of what is preventing rms from hiring workers or expanding sales to

understand how the models relate to the concept of equilibrium."

"The standard general definition of equilibrium

 is the absence of unilateral or bilateral opportunities

 for one or a pair of agents to improve their payoff(s)

 The solution to the model developed in this paper satisfies this definition.

 No firm or worker has an unexploited opportunity for self-improvement and all firm-worker

 and firm-customer relationships are bilaterally efficient."

"The DMP model is one

way to augment the model in a way that is clear about frictions that limit an expansion of

employment, but other approaches might answer the question as well"

no keynesian free lunch


 " In the conditions created by a binding lower bound on the interest rate, firms face constraints on the amount they can sell. To incorporate the DMP analysis of the labor market in

that setting, one must take a stand on the benefit that accrues to a constrained firm by hiring

another worker. I'm not aware that the issues involved in characterizing the benefit have

yet been thought through the literature on the labor-market aspects of zero-lower-bound

macroeconomics is nonexistent at this writing."

dare i eat this peach ??