Involuntary unemployment under ongoing nominal wage rate decline in overlapping generations model

Yasuhito Tanaka

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior with ongoing nominal wage rate decline. We consider a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods under monopolistic competition with increasing, decreasing or constant returns to scale technology. We examine the existenbce of involuntary unemployment in that model with ongoing mominal wage rate decline (or deflation). Even if the nominal wage rate declines, we have a steady state with involuntary unemployment and constant output and employment. We need budget deficit or budget surplus to maintain the steady state depending on whether real balance effect is positive or negative. Also we examine the possibility to achieve full-employment by fiscal policy

Keywords: Involuntary unemployment; Three-periods overlapping generations model; Monopolistic competition; Ongoing nominal wage rate decline; Real balance effect. (search for similar items in EconPapers)
JEL-codes: E12 E24 (search for similar items in EconPapers)
Date: 2020-10-28
New Economics Papers: this item is included in nep-dge, nep-mac and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:103803

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