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Italian Labour Frictions and Wage Rigidities in an Estimated DSGE

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  • Josué Diwambuena
  • Raquel Fonseca
  • Stefan Schubert

Abstract

This paper investigates how Italian labour market institutions influence business cycle fluctuations. We apply a DSGE model that features Italian labour market rigidities and we estimate the latter on Italian data using Bayesian techniques to assess the effects of demand, supply, and labour market shocks on the macroeconomy, and to measure their significance for economic fluctuations. Our results show: First, technology, time preference and wage bargaining shocks are key drivers of economic fluctuations across horizons. Second, matching efficiency and wage bargaining shocks are significant sources of unemployment and vacancies fluctuations but their role is limited for output fluctuations. Third, labour market relaxation policies have only marginally contributed to the reduction in unemployment. Last, accounting for wage rigidities influences labour market dynamics and helps the model to fit data well. We, therefore, urge policymakers to support additional changes in labour market institutions. Cet article étudie comment les institutions du marché du travail italien influencent les fluctuations du cycle économique. Nous appliquons un modèle DSGE qui présente les rigidités du marché du travail italien et nous estimons ce dernier sur des données italiennes en utilisant des techniques bayésiennes afin d'évaluer les effets des chocs de demande, d'offre et du marché du travail sur la macroéconomie, et de mesurer leur importance pour les fluctuations économiques. Nos résultats montrent : Premièrement, les chocs liés à la technologie, à la préférence temporelle et à la négociation salariale sont les principaux moteurs des fluctuations économiques à travers les horizons. Deuxièmement, les chocs d'efficacité d'appariement et de négociation salariale sont des sources significatives de fluctuations du chômage et des postes vacants, mais leur rôle est limité pour les fluctuations de la production. Troisièmement, les politiques d'assouplissement du marché du travail n'ont que marginalement contribué à la réduction du chômage. Enfin, la prise en compte des rigidités salariales influence la dynamique du marché du travail et permet au modèle de bien s'ajuster aux données. Nous exhortons donc les décideurs politiques à soutenir des changements supplémentaires dans les institutions du marché du travail.

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  • Josué Diwambuena & Raquel Fonseca & Stefan Schubert, 2021. "Italian Labour Frictions and Wage Rigidities in an Estimated DSGE," CIRANO Working Papers 2021s-33, CIRANO.
  • Handle: RePEc:cir:cirwor:2021s-33
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    More about this item

    Keywords

    DSGE; Labour market frictions; Bayesian estimation; Italy; DSGE; frictions sur le marché du travail; estimation bayésienne; Italie;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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