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Labor market imperfections, real wage rigidities and financial shocks

Author

Listed:
  • Nicola Acocella

    () (Department of Methods and Models for Economics, Territory and Finance MEMOTEF, Sapienza University of Rome (Italy))

  • Laura Bisio

    () (Sapienza University of Rome (Italy))

  • Giovanni Di Bartolomeo

    () (University of Teramo)

  • Alessandra Pelloni

    () (University of Rome Tor Vergata (Italy))

Abstract

By using the recent Gertler and Kiyotaki's (2010) setup, this paper explores the interaction between real distortions stemming from the labor market institutions and financial shocks. We find that neither labor market imperfections nor fiscal institutions determining tax wedges have an impact on the volatility of the real economy induced by a financial shock. By contrast, real wage rigidities matter as they amplify the financial shock effects. Thus, economies with larger imperfections will not systematically observe larger or smaller recessions, unless a causality between imperfections and real wage rigidities is introduced.

Suggested Citation

  • Nicola Acocella & Laura Bisio & Giovanni Di Bartolomeo & Alessandra Pelloni, "undated". "Labor market imperfections, real wage rigidities and financial shocks," Working Papers 80/11, Sapienza University of Rome, Metodi e modelli per l'economia, il territorio e la finanza MEMOTEF.
  • Handle: RePEc:rsq:wpaper:4/11
    as

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    File URL: http://www.memotef.uniroma1.it/sites/dipartimento/files/wpapers/documenti/FullTextWP80.pdf
    File Function: March 2011
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Financial accelerator; credit frictions; wage-setters; business cycle; volatility.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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