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Aggregate employment, real business cycles, and superior information

  • Boileau, Martin
  • Normandin, Michel

We test whether dynamic, stochastic, general equilibrium artificial economies associated with several labor market institutions provide an adequate characterization of aggregate employment volatility and dynamics. Our test is robust to possible misspecifications about the information set used by economic agents to forecast future events. Accounting for the agents' superior information, we find that the divisible labor, indivisible labor, and labor hoarding structures replicate employment volatility, in contrast to the nominal wage contracts and labor adjustment costs structures. Also, the labor hoarding structure provides a substantially better account of employment dynamics than the other labor market structures.

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

Volume (Year): 49 (2002)
Issue (Month): 3 (April)
Pages: 495-520

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Handle: RePEc:eee:moneco:v:49:y:2002:i:3:p:495-520
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  1. Normandin, Michel, 1999. "Budget deficit persistence and the twin deficits hypothesis," Journal of International Economics, Elsevier, vol. 49(1), pages 171-193, October.
  2. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
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  19. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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