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Real Business Cycles with Involuntary Unemployment

Author

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  • Galí, Jordi

Abstract

We develop and analyse a real business cycle model in which both goods and labour markets are characterized by imperfect competition. In equilibrium, unemployment emerges as the result of the market power exercised by insiders at the firm level. We show that a calibrated version of the model is capable of generating both a procyclical labour supply and a countercyclical unemployment rate, in a way qualitatively consistent with US data.

Suggested Citation

  • Galí, Jordi, 1995. "Real Business Cycles with Involuntary Unemployment," CEPR Discussion Papers 1206, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1206
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    References listed on IDEAS

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    1. Saint-Paul, Gilles, 1996. "Are the unemployed unemployable?," European Economic Review, Elsevier, vol. 40(7), pages 1501-1519, August.
    2. Kimball, Miles S, 1994. "Labor-Market Dynamics When Unemployment is a Worker Discipline Device," American Economic Review, American Economic Association, vol. 84(4), pages 1045-1059, September.
    3. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    4. Georges, Christophre, 1995. "Adjustment costs and indeterminacy in perfect foresight models," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 39-50.
    5. Christopher A. Pissarides, 1992. "Loss of Skill During Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1371-1391.
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    Cited by:

    1. Stephen P Millard, 2000. "The effects of increased labour market flexibility in the United Kingdom: theory and practice," Bank of England working papers 109, Bank of England.
    2. Stephen Millard & Andrew Scott & Marianne Sensier, 1999. "Business cycles and the labour market can theory fit the facts?," Bank of England working papers 93, Bank of England.

    More about this item

    Keywords

    Endogenous Mark-ups; Insider-Outsider Models; Real Business Cycles; Unemployment;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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