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Skills, sunspots and cycles

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  • Francesco Busato

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  • Enrico Marchetti

Abstract

This paper explores the ability of a class of one-sector, multi-input models to generate indeterminate equilibrium paths, and endogenous cycles, without relying on factors' hoarding. The model presents a novel theoretical economic mechanism that supports sunspot-driven expansions without requiring upward sloping labor demand schedules. Its distinctive characteristic is that the skill composition of aggregate labor demand drives expansionary i.i.d. demand shocks. Next, the model explains the labor market dynamics from the supply side, while endogenizing the capital productivity response to changes in the aggregate labor demand composition. Last but not least, it is worth to mention that the model presents an effective shock propagation mechanism that operates into the labor market and across labor market segments through the cross elasticities of equilibrium labor demand and supplies. In this respect the model can be seen as quite general formulation (with or without aggregate increasing returns to scale) for analyzing labor market dynamics within a general equilibrium model with labor market segmentation.
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Suggested Citation

  • Francesco Busato & Enrico Marchetti, 2009. "Skills, sunspots and cycles," Journal of Economics, Springer, vol. 97(3), pages 189-215, July.
  • Handle: RePEc:kap:jeczfn:v:97:y:2009:i:3:p:189-215
    DOI: 10.1007/s00712-009-0067-x
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Busato, Francesco & Marchetti, Enrico, 2010. "Endogenous skill cycles," Research in Economics, Elsevier, vol. 64(3), pages 175-185, September.
    2. Knud Jørgen Munk, 2006. "On the Rationale for the Use of Border Taxes in Developing Countries," Economics Working Papers 2006-12, Department of Economics and Business Economics, Aarhus University.
    3. Martin Paldam & Erich Gundlach, 2008. "Two Views on Institutions and Development: The Grand Transition vs the Primacy of Institutions," Kyklos, Wiley Blackwell, vol. 61(1), pages 65-100, February.
    4. Knud Jørgen Munk, 2006. "Rules of Normalisation and their Importance for Interpretation of Systems of Optimal Taxation," Economics Working Papers 2006-13, Department of Economics and Business Economics, Aarhus University.
    5. Pedro Gil, 2013. "Animal spirits and the composition of innovation in a lab-equipment R&D model with transition," Journal of Economics, Springer, vol. 108(1), pages 1-33, January.

    More about this item

    Keywords

    Indeterminacy and sunspots; Skills; O40; J24;

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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