Existence of Involuntary Unemployment: the Role of Expectations and Feedback Effects

Laurence Lasselle and Serge Svizzero ()
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Serge Svizzero: CERESUR - Centre d'Etudes et de Recherches Economique et Sociales de l'Université de La Réunion - UR - Université de La Réunion

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Abstract: We investigate the existence conditions of involuntary unemployment in an overlapping generations model with an imperfect output market. At the temporary equilibrium, unemployment is involuntary if it exists whatever the nominal wage. The study of the price-elasticity components gives us two results. Firstly, under backward-looking expectations, it may always appear whatever feedback effects. Secondly, under rational expectations, it may only exist as soon as firms incorporate (even partly) profit feedback effects.

Date: 1996-02
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Working Paper: Existence of Involuntary Unemployment: the Role of Expectations and Feedback Effects (1996)
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