New paper by Tobias Seidel, together with Gabriel M. Ahlfeldt (London School of Economics), Fabian Bald (University of Duisburg-Essen) and Duncan Roth (Institute for Employment Research (IAB), Nuremberg).
We develop a quantitative general equilibrium model for a set of regions connected through costly migration. The model rationalizes observed data in a transitory spatial equilibrium in which goods and factor markets clear, but migration is unbalanced and prices and quantities are non-stationary. We show how to uncover the model’s primitives, use the structure of the model to solve for a unique stationary spatial equilibrium, and conduct comparative statics analysis of the effects of spatial shocks on movers and stayers, allowing for spatial incidence. The model can be used to evaluate arbitrary spatial shocks to regional labour productivity, housing productivity, amenity, and bilateral migration costs, making it applicable to a wide range of policies.