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Can animal spirits explain the dynamics of European unemployment?

Listed author(s):
  • Patrick FÈVE

    (Université de Nantes, LEN-C3E and CEPREMAP)

  • François LANGOT

    (Université du Maine, GAINS and CEPREMAP)

We estimate a model with equilibrium unemployment explained by a search process on the labor market. We find that the matching function has increasing returns to scale and we show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy. In particular, self-fulfilling beliefs, or "animal spirits", can explain the fluctuations around the Beveridge curve observed in the French, German and U.K. economies.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 1996044.

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Length: 30
Date of creation: 01 Sep 1996
Handle: RePEc:ctl:louvre:1996044
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