English, Article, Journal or magazine article edition: Expected Inflation, Sunspots Equilibria and Persistent Unemployment Fluctuations Dufourt, Frédéric; Lloyd-Braga, Teresa; Modesto, Leonor

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Expected Inflation, Sunspots Equilibria and Persistent Unemployment Fluctuations
Author
  • Dufourt, Frédéric
  • Lloyd-Braga, Teresa
  • Modesto, Leonor
Physical Description
  • preprint
Notes
  • We propose and estimate a model where unemployment fluctuations result from self-fulfilling changes in expected inflation (sunspot shocks) affecting nominal wage bargaining. Since the estimated parameters fall near the locus of Hopf bifurcations, country-specific expected inflation shocks can replicate the strong persistence and heterogeneity observed in European unemployment rates. They also generate positive comovements in macroeconomic variables and a large relative volatility of consumption. All these features, hardly accounted for by standard sunspot-driven models, are explained here by the fact that liquidity constrained workers, facing earnings uncertainty in the context of imperfect unemployment insurance, choose to consume their current income.
  • unemployment fluctuations, sunspots equilibria, expected inflation, wage bargaining
  • RePEc:iza:izadps:dp4302
Language
  • English
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