Question: Consider a permanent negative productivity shock (y < 0) in the matching model of Sections 5.3 and 5.4. The shock is realized at date t1,

Consider a permanent negative productivity shock (y < 0) in the matching model of Sections 5.3 and 5.4. The shock is realized at date t1, but is anticipated by the agents from date t0 < t1 onwards. Derive the effect of this shock on the steady-state equilibrium and describe the transitional dynamics of u, v, and Ë.

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