Equilibrium unemployment dynamics

The global dynamics of Pissarides' (1990) equilibrium model of aggregate un employment are studied in the case of increasing returns to scale in produc tion and constant returns to scale in the matching process. An equilibrium is a dynamic path for the aggregate number of matches generated by best-res ponse search and recruiting investment decisions under rational expectation s. Necessary and sufficient conditions for multiple equilibria, including l imit cycles, are derived, and illustrative examples are computed. The appli cation of saddle-loop bifurcation theory is a novel feature of the analysis . Since one equilibrium Pareto dominates all the others, a macroeconomic co ordination problem exists.