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Complicated dynamics in a flow model of the labor market

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  • Neugart, Michael

Abstract

We develop a worker flow model with a nonlinear and endogenous outflow rate from unemployment. Inconsistent claims on the output lead to changing inflation rates which feedback on job offers through the real money supply. Via simulations one can show that the nonlinear outflow rate causes asymmetric adjustment of unemployment to the ‘equilibrium rate of unemployment’. In addition, and depending on the parameters, the ‘equilibrium rate of unemployment’ may also become locally unstable. Then, there is a downward sloping Phillips curve but no trade-off between unemployment and inflation in the short run, as there is none in the long run.
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  • Neugart, Michael, 2004. "Complicated dynamics in a flow model of the labor market," Journal of Economic Behavior & Organization, Elsevier, vol. 53(2), pages 193-213, February.
    • Handle: RePEc:eee:jeborg:v:53:y:2004:i:2:p:193-213
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