Template-Type: ReDIF-Paper 1.0
Author-Name: Mirko Abbritti
Author-X-Name-First: Mirko
Author-X-Name-Last: Abbritti
Author-Email: abbritt3@hei.unige.ch
Author-Workplace-Name: Graduate Institute of International Studies, Geneva
Author-Name: Andrea Boitani
Author-X-Name-First: Andrea
Author-X-Name-Last: Boitani
Author-Email: andrea.boitani@unicatt.it
Author-Workplace-Name: DISCE, Università Cattolica, Milan
Author-Name: Mirella Damiani
Author-X-Name-First: Mirella
Author-X-Name-Last: Damiani
Author-Email: mirelladamiani@libero.it
Author-Workplace-Name: Università di Perugia

Title: Labour market imperfections, "divine coincidence" and the volatility of employment and inflation

Abstract: The dynamic general equilibrium model with hiring costs presented in this paper 
delivers involuntary unemployment in the steady state as well as 
involuntary fluctuations in unemployment. The existence of hiring friction 
introduces externalities that, in turn, entail the breakdown of the "divine coincidence" 
without assuming real wage rigidity. 
Our model with labour market imperfections outperforms the standard NK model 
as for the persistence of responses to monetary shocks. 
The model also allows for an analysis of the volatility of economies, 
differing in their "degrees of  labour market rigidity". 
It turns out that "rigid" economies exhibit less unemployment volatility 
and more inflation volatility than "flexible" economies.
Length: nn pages 39
Creation-Date: 2008-04

File-URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0078.pdf
File-Format: Application/pdf
File-Function: First version, 2008
Number: ief0078
Classification-JEL: E24, E31, E32, E52, J64
Keywords: Hiring Costs, Wage Bargaining, Output Gap, New Keynesian Phillips
Curve
Handle: RePEc:ctc:serie3:ief0078