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Several contributions have recently assessed the size of fiscal multipliers both in RBC models and New Keynesian models. None of the studies considers a model with frictional labour markets which is a crucial element, particularly at times in which much of the fiscal stimulus has been directed toward labour market measures. We use an open economy model (more specifically a currency area calibrated on the EMU) with labour market frictions in the form of labour turnover costs and workers’ heterogeneity to measure fiscal multipliers. We compute short and long run multipliers and open economy spillovers for five types of fiscal packages: pure demand stimuli and consumption tax cuts return very small multipliers; income tax cut and hiring subsidies deliver larger multipliers as they reduce distortions in sclerotic labour markets; short-time work (German "Kurzarbeit") returns negative short-run multipliers, but stabilises employment. Our model highlights a novel dimension through which multipliers operate, namely the labour demand stimulus which occurs in a model with nonwalrasian labour markets.

We study whether labor market institutions affect the volatility and correlations of macroeco-nomic variables for a sample of 20 OECD countries. Labor market rigidities are characterized with a number of indicators; volatilities and correlations are computed in several ways. Union coverage and replacement ratios in the first year of unemployment are the labor market rigidities that most significantly affect business cycle statistics. Active labor market policies are effective in reducing unemployment volatility in countries with heavily regulated labor markets.

We study the e¤ects of progressive labor income taxation in an otherwise standard NK model. We show that progressive taxation (i) introduces a trade-o ¤ between output and in‡ation stabilization and a¤ects the slope of the Phillips Curve; (ii) acts as automatic stabilizer changing the responses to technology shocks and demand shocks (iii) alters the prescription for the optimal monetary policy. The welfare gains from commitment decrease as labor income taxes become more progressive. Quantitatively, the model reproduces the observed negative correlation between the volatility of output, hours and in‡ation and the degree of progressivity of labor income taxation.

We study optimal monetary policy and welfare properties of a DSGE model with a labor selection process, labor turnover costs and Nash bargained wages. We show that our model implies ine ¢ ciencies which cannot be o¤set in a standard wage bargaining regime. We also show that the ine ¢ ciencies rise with the magnitude of …ring costs. As a result, in the optimal Ramsey plan, the optimal ination volatility deviates from zero and is an increasing function of ring costs.

This dissertation explores the connection between the structure of labor mar-kets and business cycle dynamics, with a focus on informality. The first chapter summarizes the main contributions of the dissertation. Institutional quality is one of the most important determinants of cross-country differences in informality. The second chapter analyzes the link between institutions, the size of the in-formal sector, and aggregate volatility. I build a business cycle search and matching model with informal labor markets that captures the positive connection between informal sector size and consumption and investment volatility in the data. In addi-tion, I show that the root cause of changes in the size of the informal sector matters for establishing the relationship between (1) informality and long-run macroeco-nomic outcomes and (2) informality and aggregate volatility. For the same change in informal sector size, changes in different parameters of institutional quality in the model have contrasting quantitative implications for the steady state and the volatility of unemployment in the economy. These results highlight the importance of identifying the specific source behind changes in the size of the informal sector to

This paper shows that the German labor market is more volatile than the US labor market at the business cycle frequency. Specifically, the volatility of the cyclical component of several labor market variables (e.g., the job-finding rate, the labor market tightness and vacancies) divided by the volatility of labor productivity is roughly twice as large as in the United States. We derive and simulate a simple model to explain this seemingly puzzling result. This new model provides explanations for this phenomenon, in particular the longer job tenure in Germany.

Reforming the labor market and improving competitiveness: an analysis for Spain using FiMod

Die ZBW räumt Ihnen als Nutzerin/Nutzer das unentgeltliche, räumlich unbeschränkte und zeitlich auf die Dauer des Schutzrechts beschränkte einfache Recht ein, das ausgewählte Werk im Rahmen der unter

In the standard New Keynesian sticky price model the central bank faces no contradiction between the stabilization of inflation and the stabilization of the welfare relevant output gap after a productivity shock hits the economy. When the standard model is enhanced by real wage rigidities or labor turnover costs, an endogenous short-run inflation-output tradeoff arises. This paper compares the implications of the two labor market rigidities. It argues that economists and policymakers alike should pay more attention to labor turnover costs for the following reasons. First, a model with labor turnover costs generates impulse response functions that are more in line with the empirical evidence than those of a model with real wage rigidities. Second, labor turnover costs are the dominant source for the inflation-output tradeoff when both rigidities are present in the model. And finally, there is stronger empirical evidence for the existence of labor turnover costs than for real wage rigidities.