Skills,sunspots and cycles |
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Authors: | Francesco Busato Enrico Marchetti |
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Affiliation: | (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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