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Indeterminacy in a finance constrained unionized economy

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  • Lloyd-Braga, Teresa
  • Modesto, Leonor

Abstract

We introduce labour market imperfections (i.e. unions and the existence of a wage floor) in a finance-constrained monetary economy with heterogenous agents and increasing returns to scale due to labour and capital productive externalities. We find that indeterminacy emerges for empirically plausible values of the parameters, compatible with a downward-sloping marginal productivity of labour curve. Moreover, we show that indeterminacy and Hopf bifurcations are possible with an (arbitrarily) small degree of (total) externalities provided that the share of labour externalities exceed a lower bound, which decreases with union power. We also find that unions increase simultaneously steady-state employment, capital accumulation and welfare if the marginal productivity of labour is decreasing in employment.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 43 (2007)
Issue (Month): 3-4 (April)
Pages: 347-364

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Handle: RePEc:eee:mateco:v:43:y:2007:i:3-4:p:347-364

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

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  1. Orszag, J. Michael & Snower, Dennis J., 1998. "Anatomy of Policy Complementarities," Working Paper Series, Research Institute of Industrial Economics 500, Research Institute of Industrial Economics.
  2. Lloyd-Braga, Teresa & Modesto, Leonor, 2007. "Indeterminacy in a finance constrained unionized economy," Journal of Mathematical Economics, Elsevier, vol. 43(3-4), pages 347-364, April.
  3. repec:fth:iniesr:500 is not listed on IDEAS
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  15. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
  16. Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
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  18. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, Springer, vol. 5(1), pages 87-120, March.
  19. Rui Coimbra & Teresa Lloyd-Braga & Leonor Modesto, 2005. "Endogenous fluctuations in unionized economies with productive externalities," Economic Theory, Springer, Springer, vol. 26(3), pages 629-649, October.
  20. Cazzavillan, Guido, 2001. "Indeterminacy and Endogenous Fluctuations with Arbitrarily Small Externalities," Journal of Economic Theory, Elsevier, vol. 101(1), pages 133-157, November.
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Citations

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Cited by:
  1. Teresa Lloyd-Braga & Leonor Modesto & Thomas Seegmuller, 2011. "Market distortions and local indeterminacy: a general approach," Working Papers halshs-00576582, HAL.
  2. Frédéric Dufourt & Teresa Lloyd-Braga & Leonor Modesto, 2008. "Indeterminacy, bifurcations and unemployment fluctuations," Post-Print halshs-00815504, HAL.
  3. Lloyd-Braga, Teresa & Modesto, Leonor, 2004. "Indeterminacy in a Finance Constrained Unionized Economy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4679, C.E.P.R. Discussion Papers.
  4. Koskela, Erkki & Puhakka, Mikko, 2007. "Stability and Dynamics in an Overlapping Generations Economy with Flexible Wage Negotiations," IZA Discussion Papers 3246, Institute for the Study of Labor (IZA).
  5. Lloyd-Braga, Teresa & Modesto, Leonor & Seegmuller, Thomas, 2006. "Tax Rate Variability and Public Spending as Sources of Inderterminacy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5796, C.E.P.R. Discussion Papers.
  6. Thomas Seegmuller & Leonor Modesto & Teresa Lloyd-Braga, 2008. "Market Imperfections and Endogenous Fluctuations," 2008 Meeting Papers 739, Society for Economic Dynamics.

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