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Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility

  • Pierpaolo Benigno
  • Luca Antonio Ricci
  • Paolo Surico

The paper presents a new empirical regularity between the volatility of productivity growth and long-run unemployment, for a given level of long-run productivity growth. A theoretical framework based on asymmetric real wage rigidities is shown to have the potential to rationalize this finding. The model tends to fit U.S. long-run unemployment better than a specification based on long-run productivity growth only, especially during the Great Moderation and the Great Recession.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16374.

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Date of creation: Sep 2010
Date of revision:
Handle: RePEc:nbr:nberwo:16374
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  1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  2. Caju, P. Du & Fuss, C. & Wintr, L., 2012. "Sectoral differences in downward real wage rigidity: workforce composition, institutions, technology and competition," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 45(1), pages 7-22.
  3. Thomas J. Sargent & Paolo Surico, 2011. "Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals," American Economic Review, American Economic Association, vol. 101(1), pages 109-28, February.
  4. Pierpaolo Benigno & Luca Antonio Ricci, 2010. "The Inflation-Output Trade-off with Downward Wage Rigidities," EIEF Working Papers Series 1020, Einaudi Institute for Economics and Finance (EIEF), revised Apr 2010.
  5. Timothy Cogley & Thomas Sargent, . "Evolving Post-World War II U.S. Inflation Dynamics," Working Papers 2132872, Department of Economics, W. P. Carey School of Business, Arizona State University.
  6. Nir Jaimovich & Henry E. Siu, 2008. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," NBER Working Papers 14063, National Bureau of Economic Research, Inc.
  7. Tim W. Cogley, 2003. "Drifts and Volatilities: Monetary Policies and Outcomes in the Post War U.S," Working Papers 35, University of California, Davis, Department of Economics.
  8. Holden, Steinar & Wulfsberg, Fredrik, 2009. "How strong is the macroeconomic case for downward real wage rigidity?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 605-615, May.
  9. Philip Du Caju & Catherine Fuss & Ladislav Wintr, 2009. "Understanding sectoral differences in downward real wage rigidity : workforce composition, institutions, technology and competition," Working Paper Research 156, National Bank of Belgium.
  10. Fagan, Gabriel & Messina, Julián, 2009. "Downward wage rigidity and optimal steady-state inflation," Working Paper Series 1048, European Central Bank.
  11. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2006. "Sudden Stops and Phoenix Miracles in Emerging Markets," American Economic Review, American Economic Association, vol. 96(2), pages 405-410, May.
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