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Can animal spirits explain the dynamics of European unemployment?

Author

Listed:
  • Patrick FÈVE

    (Université de Nantes, LEN-C3E and CEPREMAP)

  • François LANGOT

    (Université du Maine, GAINS and CEPREMAP)

Abstract

We estimate a model with equilibrium unemployment explained by a search process on the labor market. We find that the matching function has increasing returns to scale and we show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy. In particular, self-fulfilling beliefs, or "animal spirits", can explain the fluctuations around the Beveridge curve observed in the French, German and U.K. economies.

Suggested Citation

  • Patrick FÈVE & François LANGOT, 1996. "Can animal spirits explain the dynamics of European unemployment?," Discussion Papers (REL - Recherches Economiques de Louvain) 1996044, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvre:1996044
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    Cited by:

    1. Giammarioli, Nicola, 2003. "Indeterminacy and search theory," Working Paper Series 271, European Central Bank.

    More about this item

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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