|Random walk in labor supply space. The dimensions would be employment at different firms or in different industries.|
As part of my outline of paper #2, I put together a couple of posts that create an interesting result. I previously built a version of MINIMAC (mini macro model) as described by Paul Krugman here as an information equilibrium/maximum entropy model. One consequence of that model is that you can derive a natural rate of unemployment fairly simply.
If we treat the problem as a random walk inside the simplex (bounded by the labor supply, pictured at the top), we get a simple model of spikes in the unemployment rate (shown for a d = 40 dimensional simplex):
|Occasional spikes in unemployment, that are caused by randomly moving through the employment state space.|
This is to say that you could get spikes in unemployment for no reason whatsoever ... it's just randomly moving around the employment state space. I think I'd still lean towards this model, however.
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