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Labor market imperfections, real wage rigidities and financial shocks

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  • Long Xin
  • 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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Suggested Citation

  • Long Xin & Pelloni Alessandra, 2011. "Labor market imperfections, real wage rigidities and financial shocks," wp.comunite 0071, Department of Communication, University of Teramo.
  • Handle: RePEc:ter:wpaper:0071
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    File URL: http://wp.comunite.it/data/wp_no_71_2011.pdf
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    References listed on IDEAS

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    Cited by:

    1. van Oudheusden, P., 2012. "Dynamic Scoring Through Creative Destruction," Discussion Paper 2012-084, Tilburg University, Center for Economic Research.

    More about this item

    Keywords

    Capital income taxes; R&D; growth effect; welfare Effect;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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