Hysteresis in unemployment: A confidence channel

Dmitry Plotnikov

International Journal of Economic Theory, 2019, vol. 15, issue 1, 109-127

Abstract: This paper develops a general equilibrium rational expectations model with search and multiple equilibria where aggregate shocks have a permanent effect on the unemployment rate. If agents’ wealth decreases, for either fundamental (productivity) or non‐fundamental (sunspot) reasons, the unemployment rate can increase for a potentially indefinite period. This makes the unemployment rate dynamics path dependent.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:bla:ijethy:v:15:y:2019:i:1:p:109-127

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