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Title:Expected inflation, sunspots equilibria and persistent unemployment fluctuations PDF Logo
Authors:Dufourt, Frédéric
Lloyd-Braga, Teresa
Modesto, Leonor
Issue Date:2009
Series/Report no.:IZA Discussion Papers 4302
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.
Subjects:Unemployment fluctuations
sunspots equilibria
expected inflation
wage bargaining
JEL:J60
E32
E37
Persistent Identifier of the first edition:urn:nbn:de:101:1-20090825106
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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