Invites you to a

Macroeconomics and Trade seminar presented by

Sephorah Mangin

(Australian National University)

The asymptotic effect of search frictions on extreme value outcomes

Co-author:

Louis Becker (Australian National University)

Wednesday 26 October

2.00pm – 3.30pm

Via Zoom: Meeting Link

Abstract: Extreme value processes involving maxima are widespread in economics. We provide a general result regarding the asymptotic effect of search frictions on the outcomes of such processes. To do this, we allow the number of draws from the underlying distribution (e.g. of output, productivity, or utility shocks) to be given by a discrete probability distribution called the search technology. Surprisingly, we find that search frictions can affect extreme value outcomes even in the limit as the expected number of draws becomes large. For the class of search technologies we consider, we show that extreme value outcomes depend not only on the tail index of the underlying distribution but also on the asymptotic dispersion of the search technology itself. For example, if the underlying distribution is Pareto, the expected value of the maximum behaves asymptotically like the expected value of the Frechet distribution scaled by a term capturing the effect of search frictions. We show that this scaling factor equals one, and there is no asymptotic effect of search frictions, only if there is zero asymptotic dispersion. This is true only if the search technology is Poisson-like or deterministic. We consider some applications of our general result, such as the behavior of markups.

For further information contact: Macroeconomics and Trade seminar series coordinator Dr James Graham (james.a.graham@sydney.edu.au)

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