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Unemployment dynamics with international capital mobility

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  • Azariadis, Costas
  • Pissarides, Christopher A.

Abstract

We study the response of domestic unemployment rates to shocks in total factor productivity for economies with high capital mobility and low labour mobility. We show that rapid capital movements across national borders, like those experienced by developed nations in the last twenty years, substantially amplify the impact on the domestic unemployment rate of domestic fluctuations in total factor productivity relative to what would have happened in a closed economy, shorten the duration of the responses and raise the variability of employment. Capital flows increase the riskiness of labour income and reduce the riskiness of capital income.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 51 (2007)
Issue (Month): 1 (January)
Pages: 27-48

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Handle: RePEc:eee:eecrev:v:51:y:2007:i:1:p:27-48

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Web page: http://www.elsevier.com/locate/eer

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References

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  1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
  2. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  3. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
  4. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  5. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  6. Giovanna Vallanti, 2005. "Capital Mobility and Unemployment Dynamics: Evidence from a Panel of OECD Countries," CEP Discussion Papers dp0684, Centre for Economic Performance, LSE.
  7. C Bean & Christopher A. Pissarides, 1992. "Unemployment, Consumption and Growth," CEP Discussion Papers dp0100, Centre for Economic Performance, LSE.
  8. Georges de Ménil, 1999. "Real capital market integration in the EU: How far has it gone? What will the effect of the euro be?," Economic Policy, CEPR & CES & MSH, vol. 14(28), pages 165-201, 04.
  9. Obstfeld, Maurice, 1986. "Capital mobility in the world economy: Theory and measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 55-103, January.
  10. Dale T. Mortensen & Randall Wright, 2002. "Competitive Pricing and Efficiency in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 1-20, February.
  11. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  12. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
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Cited by:
  1. Hiraguchi, Ryoji, 2011. "A note on the competitive search model of Azariadis and Pissarides," European Economic Review, Elsevier, vol. 55(2), pages 304-306, February.
  2. Egbert, Henrik & Naqvi, Nadeem, 2011. "Market-dependent production set," MPRA Paper 33829, University Library of Munich, Germany.
  3. Hector Sala & Jose I. Silva & Manuel E. Toledo, 2007. "Flexibility at the margin and labor market volatility in OECD countries," Economics Working Papers we075832, Universidad Carlos III, Departamento de Economía.
  4. Marta Aloi & Teresa Lloyd-Braga, 2010. "National labor markets, international factor mobility and macroeconomic instability," Economic Theory, Springer, vol. 43(3), pages 431-456, June.
  5. M. Alper Çenesiz & Christian Pierdzioch, 2010. "Capital mobility and labor market volatility," International Economics and Economic Policy, Springer, vol. 7(4), pages 391-409, December.
  6. Schubert, Stefan F., 2011. "The effects of total factor productivity and export shocks on a small open economy with unemployment," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1514-1530, September.
  7. Giovanna Vallanti, 2005. "Capital Mobility and Unemployment Dynamics: Evidence from a Panel of OECD Countries," CEP Discussion Papers dp0684, Centre for Economic Performance, LSE.

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