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Endogenous Business Cycles With Frictional Labour Markets

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  • Nigar Hashimzade
  • Salvador Ortigueira

Abstract

We present a neoclassical model of capital accumulation with frictional labour markets. Under standard parameter values the equilibrium of the model is indeterminate and consequently displays expectations-driven business cycles - so-called endogenous business cycles. We study the properties of such cycles, and find that the model predicts the high autocorrelation in output growth and the hump-shaped impulse response of output found in US data - important features that existing endogenous real business cycle models fail to explain. The indeterminacy of the equilibrium stems from job search externalities and does not rely on increasing returns to scale as in most models. Copyright 2005 Royal Economic Society.

Suggested Citation

  • Nigar Hashimzade & Salvador Ortigueira, 2005. "Endogenous Business Cycles With Frictional Labour Markets," Economic Journal, Royal Economic Society, vol. 115(502), pages 161-175, March.
  • Handle: RePEc:ecj:econjl:v:115:y:2005:i:502:p:c161-c175
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    Cited by:

    1. Faia, Ester, 2008. "Optimal monetary policy rules with labor market frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1600-1621, May.
    2. Michael U. Krause & Thomas A. Lubik, 2010. "Instability and indeterminacy in a simple search and matching model," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 259-272.
    3. Faia, Ester, 2009. "Ramsey monetary policy with labor market frictions," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 570-581, May.
    4. Smith, Ron P. & Zoega, Gylfi, 2008. "Global Factors, Unemployment Adjustment and the Natural Rate," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-29.

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