Long-run Unemployment and Macroeconomic Volatility
Stefano Fasani ()
No 352, Working Papers from University of Milano-Bicocca, Department of Economics
This paper develops a DSGE model with downward nominal wage rigidity, in which aggregate price and productivity dynamics are exogenously determined by independent Brownian motions with drift. As a result, the long-run expected value of unemployment depends positively on the drift coeÂ¢ cients and negatively on the volatility coeÂ¢ cients of both price and productivity growth processes. Model prescriptions are empirically tested by using a dataset including a wide sample of OECD countries from a period spanning from 1961 to 2011. Panel regressions with fixed effects and time dummies confirm the expected relation of inflation and productivity with unemployment at low frequencies. Long-run unemployment is negatively correlated with the levels of inflation and productivity growth, and positively with their volatilities.
Keywords: Long-run unemployment; Downward Nominal Wage Rigidity; Volatility; InÂ‡ation targeting; DSGE model; Cross-country panel data (search for similar items in EconPapers)
JEL-codes: E12 E24 E31 C23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2016-10-18, Revised 2016-10-18
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Working Paper: Long-run Unemployment and Macroeconomic Volatility (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:352
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