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Author Dufourt, Frédéric ♦ Lloyd-Braga, Teresa ♦ Modesto, Leonor
Source EconStor
Content type Text
Publisher Institute for the Study of Labor (IZA)
File Format PDF
Language English
Subject Domain (in DDC) Social sciences ♦ Economics
Subject Keyword Unemployment fluctuations ♦ sunspots equilibria ♦ expected inflation ♦ wage bargaining ♦ Arbeitslosigkeit ♦ Volatilität ♦ Hysteresis ♦ Inflationserwartung ♦ Sunspot ♦ Lohnverhandlungen ♦ Theorie ♦ Schätzung ♦ EU-Staaten ♦ Mobility, Unemployment, Vacancies, and Immigrant Workers: General ♦ Business Fluctuations; Cycles ♦ Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
Abstract We propose and estimate a model where unemployment fluctuations result from self-fulfilling changes in expected inflation (sunspot shocks) affecting nominal wage bargaining. Since the estimated parameters fall near the locus of Hopf bifurcations, country-specific expected inflation shocks can replicate the strong persistence and heterogeneity observed in European unemployment rates. They also generate positive comovements in macroeconomic variables and a large relative volatility of consumption. All these features, hardly accounted for by standard sunspot-driven models, are explained here by the fact that liquidity constrained workers, facing earnings uncertainty in the context of imperfect unemployment insurance, choose to consume their current income.
Part of series IZA Discussion Papers x4302
Learning Resource Type Article
Publisher Date 2009-01-01
Publisher Place Bonn
Rights Holder