Labor market imperfections, real wage rigidities and financial shocks

Nicola Acocella (), Laura Bisio (), Giovanni Di Bartolomeo () and Alessandra Pelloni

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Abstract: 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.

Keywords: Financial accelerator; credit frictions; wage-setters; business cycle; volatility (search for similar items in EconPapers)
JEL-codes: E32 E44 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Related works:
Working Paper: Labor Market Imperfections, Real Wage Rigidities and Financial Shocks (2012)
Working Paper: Labor market imperfections, real wage rigidities and financial shocks (2011)
Working Paper: Labor market imperfections, real wage rigidities and financial shocks
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