Dear Johannes,
First thank you for your previous guidance, I am grateful.
I am formulating a DSGE model with a focus in financial market, and I incorporate a labor supply shock in household utility function, however, I am also assuming perfectly competitive labor market. I am wondering that does the existence of labor supply shock (aggregate shock) contradict the perfectly competitive labor market assumption?
Thank you very much and look forward to hearing from you.
Best regards,
Jesse
Why would it? Competitiveness just means everyone is a price-taker. That does not contradict people suddenly wanting to work less for a given wage.