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Real Business Cycles with Involuntary Unemployment

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  • Gali, 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.
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Suggested Citation

  • Gali, Jordi, 1995. "Real Business Cycles with Involuntary Unemployment," Working Papers 95-12, C.V. Starr Center for Applied Economics, New York University.
  • Handle: RePEc:cvs:starer:95-12
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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

    Real business cycles; unemployment; insider outsider models; endogenous markups;

    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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