Labor market imperfections, real wage rigidities and financial shocks

Acocella, Nicola and Bisio, Laura and Di Bartolomeo, Giovanni and Pelloni, Alessandra (2011) Labor market imperfections, real wage rigidities and financial shocks. Working Paper. Department of Methods and Models for Economics, Territory and Finance, Rome. (Unpublished)


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By using the recent Gertler and Kiyotaki’s (2010) setup, this paper explores the interaction between real distortions stemming from the labor market institutions and financial shocks. We find that neither labor market imperfections nor fiscal institutions determining tax wedges have an impact on the volatility of the real economy induced by a financial shock. By contrast, real wage rigidities matter as they amplify the financial shock effects. Thus, economies with larger imperfections will not systematically observe larger or smaller recessions, unless a causality between imperfections and real wage rigidities is introduced.

Item Type: Monograph (Working Paper)
Additional Information: Jel codes: E32, E44.
Uncontrolled Keywords: Financial accelerator, credit frictions, wage-setters, business cycle, volatility
Subjects: 300 Scienze sociali > 330 Economia
Depositing User: Prof. Nicola Acocella
Date Deposited: 18 Mar 2011 09:05
Last Modified: 18 Mar 2011 09:05

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