Skills,sunspots and cycles |
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Authors: | Francesco Busato Enrico Marchetti |
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Institution: | (1) Department of Economics, University of Naples “Parthenope”, Via Medina 40 (II Floor), 80133 Naples, Italy;(2) School of Economics and Management, University of Aarhus, Building 322, 8000 Aarhus C, Denmark;(3) Sapienza University of Rome, Rome, Italy |
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Abstract: | This paper explores the ability of a class of one-sector, multi-input models to generate indeterminate equilibrium paths,
and endogenous fluctuations, without relying on factors’ hoarding. The model presents a novel theoretical economic mechanism
that supports sunspot-driven expansions without requiring upward sloping labor demand schedules. Its distinctive characteristic
is that the skill composition of aggregate labor demand drives expansionary i.i.d. demand shocks. Next, the model explains
the labor market dynamics from the supply side, while endogenizing the capital productivity response to changes in the aggregate
labor demand composition. Last but not least, it is worth to mention that the model presents an effective shock propagation
mechanism that operates into the labor market and across labor market segments through the cross elasticities of equilibrium
labor demand and supplies.
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Keywords: | Indeterminacy and sunspots Skills |
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