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National Labor Markets, International Factor Mobility and Macroeconomic Instability

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  • Marta Aloi
  • Teresa Lloyd-Braga

Abstract

We consider a standard two—country environment, where one of the countries has rigid wages and unemployment, and analyze how factor markets’ integration affects the economy with respect to expectationsdriven fluctuations. We demonstrate that by allowing free capital mobility, indeterminacy is exported to the world economy. If further liberalization is permitted, by allowing free movements of labor, the scope for indeterminacy is reduced and open labor markets may produce a stabilizing effect on the global macroeconomy. Whether this also implies higher welfare in the long run depends on differentials in average firm size across countries.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 09/10.

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Handle: RePEc:not:notcfc:09/10

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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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Keywords: Indeterminacy; Factor Movements; Globalization; Efficiency Wages;

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Cited by:
  1. Jean-Michel Grandmont, 2006. "Negishi-Solow Efficiency Wages, Unemployment Insurance and Dynamic Deterministic Indeterminacy," Working Papers 2006_60, Department of Economics, University of Venice "Ca' Foscari".
  2. Kunieda, Takuma & Shibata, Akihisa, 2012. "Financial Globalization and Animal Spirits," MPRA Paper 36123, University Library of Munich, Germany.
  3. Patrick-Antoine Pintus, 2007. "Procyclical International Capital Flows, Debt Overhang And Volatility," Working Papers halshs-00353596, HAL.

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