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Dynamic Effects of Regulation and Deregulation in Goods and Labour Markets

  • Pasquale Commendatore


    (Università di Napoli 'Federico II')

  • Ingrid Kubin


    (Vienna University of Economics & B.A.)

Modern macroeconomic models with a Keynesian flavour usually involve nominal rigidities in wages and goods prices. A typical model is static and combines wage bargaining in the labour markets and monopolistic competition in the goods markets. As central policy implication it follows that deregulating labour and/or goods markets increases equilibrium employment. We reassess the consequences of deregulation in a dynamic model. It still increases employment at the fixed point, which corresponds to the static equilibrium solution. However, deregulation may also lead to stability loss and endogenous fluctuations.

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Paper provided by Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness in its series Working Papers with number geewp49.

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Date of creation: May 2005
Date of revision:
Handle: RePEc:wiw:wiwgee:geewp49
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  1. Olivier Blanchard & Francesco Giavazzi, . "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January.
  3. Heijdra, Ben J. & Ligthart, Jenny E., 1997. "Keynesian Multipliers, Direct Crowding Out, and the Optimal Provision of Public Goods," Journal of Macroeconomics, Elsevier, vol. 19(4), pages 803-826, October.
  4. Lars Calmfors & Åsa Johansson, 2001. "Unemployment Benefits, Contract Length and Nominal Wage Flexibility," CESifo Working Paper Series 514, CESifo Group Munich.
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  6. d ASPREMONT, Claude, & DOS SANTOS FERREIRA , Rodolphe & GERARD-VARET , Louis-André, 1994. "Market Power, Coordination Failures and Endogenous Fluctuations," CORE Discussion Papers 1994068, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  8. Calmfors, Lars & Johansson, Åsa, 2001. "Unemployment Benefits, Contract Length And Nominal Wage Flexibility," Seminar Papers 692, Stockholm University, Institute for International Economic Studies.
  9. Dixit, Avinash K & Stiglitz, Joseph E, 1993. "Monopolistic Competition and Optimum Product Diversity: Reply," American Economic Review, American Economic Association, vol. 83(1), pages 302-04, March.
  10. d’ASPREMONT, C. & DOS SANTOS FERREIRA, R. & GERARD-VARET, L.-A., 1986. "On monopolistic competition and involuntary unemployment," CORE Discussion Papers 1986035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  12. d'ASPREMONT, C. & DOS SANTOS FERREIRA, R. & GÉRARD-VARET, L.-A., . "On the Dixit-Stiglitz model of monopolistic competition," CORE Discussion Papers RP 1211, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Nickell, Stephen J, 1990. "Unemployment: A Survey," Economic Journal, Royal Economic Society, vol. 100(401), pages 391-439, June.
  14. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
  15. Jin, Jim Y., 2001. "Monopolistic competition and bounded rationality," Journal of Economic Behavior & Organization, Elsevier, vol. 45(2), pages 175-184, June.
  16. Heijdra, Ben J & Ligthart, Jenny E & van der Ploeg, Frederick, 1998. "Fiscal Policy, Distortionary Taxation, and Direct Crowding Out under Monopolistic Competition," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 79-88, January.
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