Integrating search in macroeconomics: the defining years

Our paper studies two attempts at integrating unemployment in macroeconomics. The first, due to Diamond, consists in a search model exhibiting multiple equilibria. The second is due to Andolfatto and Merz who, more or less simultaneously, were able to integrate the matching function in RBC modeling. As a common thread of these two attempts is to be based on the search approach as developed in labor economics, we recount the birth and further development of the search paradigm in a first section. We then analyze Diamond’s, Andolfatto’s and Merz’s contributions. Our interest lies specifically in how they made their way in the development of the field. We show that Diamond’s model, which ambitioned to rival Lucas’s Expectations and the Neutrality of Money model, did not live up to its author’s expectations. We propose an interpretation as to the reason this was so. As to Andolfatto and Merz, while their project was less ambitious, we show that they were able to establish what they were striving at, namely an harmonious integration of one particular search model within the RBC paradigm. The price to be paid, however, was to abandon several constitutive traits of the search approach.