Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316524 
Authors: 
Year of Publication: 
2017
Citation: 
[Journal:] East Asian Economic Review (EAER) [ISSN:] 2508-1667 [Volume:] 21 [Issue:] 2 [Year:] 2017 [Pages:] 167-197
Publisher: 
Korea Institute for International Economic Policy (KIEP), Sejong-si
Abstract: 
I build a small open economy (SOE) dynamic stochastic general equilibrium (DSGE) model to investigate the effect of a heterogeneous wage contract between regular and temporary workers on a macroeconomic volatility in a financially fragile economy. The imperfect financial market condition is captured by a quadratic financial adjustment cost for borrowing foreign assets, and the labor market friction is captured by a Nash bargaining process which is only available to the regular workers when they negotiate their wages with the firms while the temporary workers are given their wage which simply equals the marginal cost. As a result of impulse responses to a domestic productivity shock, the higher elasticity of substitution between two types of workers and the lower weight on the regular workers in the firm's production process induce the higher volatilities in most variables. This is reasoned that the higher substitutability creates more volatile wage determination process while the lower share of the regular workers weakens their Nash bargaining power in the contract process.
Subjects: 
DSGE
Nash Bargaining Wage Contract
Labor Market Friction
Open Economy Macroeconomics
Financial Market Fragility
JEL: 
C68
E52
F41
G10
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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