Imperfect Competition, Capital Shortages and Unemployment Persistence

Jean-Pascal Benassy ()

Scandinavian Journal of Economics, 1997, vol. 99, issue 1, pages 15-27

Abstract: The author constructs a model integrating the traditions of imperfect competition macroeconomics and real business cycles. For this the author studies a dynamic economy with optimizing households, firms, and trade unions subject to stochastic shocks. The author can derive closed-form solutions for the behavior of all agents. It is found that the combination of capital shortages and imperfect competition in labor markets can give rise to unemployment and that this unemployment is quite persistent, even when the underlying shocks are not. Copyright 1997 by The editors of the Scandinavian Journal of Economics.

Date: 1997
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