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http://hdl.handle.net/10419/35911
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| Title: | | Expected inflation, sunspots equilibria and persistent unemployment fluctuations  |
| 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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