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Long-Term Growth and Short-Term Volatility: The Labour Market Nexus

  • Annicchiarico, B.
  • Corrado, L.
  • Pelloni, A.

We study the relationship between growth and variability in a DSGE model with nominal rigidities and growth driven by learning-by-doing. We show that this relationship may be positive or negative depending on the impulse source of fluctuations A key role is also played by the Frisch elasticity of labour supply and by institutional features of the labour market. Our general findings are that monetary shocks volatility will generally have a negative effect on growth, while the opposite tends to be true for fiscal and productivity shocks. These findings are somehow consistent with the existing empirical evidence: data show, in fact, a somewhat ambiguous relationship between output growth and real variability, but a generally negative relationship between output growth and nominal variability.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0823.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0823.

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Length: 24
Date of creation: Apr 2008
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Handle: RePEc:cam:camdae:0823
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