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Labor market imperfections, real wage rigidities and financial shocks

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  • Acocella Nicola
  • Bisio Laura
  • Di Bartolomeo Giovanni
  • Pelloni Alessandra

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.

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  • Acocella Nicola & Bisio Laura & Di Bartolomeo Giovanni & Pelloni Alessandra, 2011. "Labor market imperfections, real wage rigidities and financial shocks," wp.comunite 0070, Department of Communication, University of Teramo.
    • Handle: RePEc:ter:wpaper:0070
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    1. van Oudheusden, P., 2012. "Dynamic Scoring Through Creative Destruction," Discussion Paper 2012-084, Tilburg University, Center for Economic Research.

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    More about this item

    Keywords

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

    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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