Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/20362
Authors: 
Sorolla, Valeri
Sala, Héctor
Raurich, Xavier
Year of Publication: 
2004
Series/Report no.: 
IZA Discussion paper series 1127
Abstract: 
We develop a growth model with unemployment due to imperfections in the labor market. In this model, wage inertia and balanced budget rules cause a complementarity between capital and employment capable of explaining the existence of multiple equilibrium paths. Hysteresis is viewed as the result of a selection between these different equilibrium paths. We use this model to argue that, in contrast to the US, those fiscal policies followed by most of the European countries after the shocks of the 1970?s may have played a central role in generating hysteresis.
Subjects: 
unemployment
hysteresis
multiple equilibria
economic growth
fiscal policy
JEL: 
E62
E24
O41
Document Type: 
Working Paper

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