ICEF Research Seminar by Nikolaos Kokonas (University of Bath)

On Thursday, January 19 at 4.40 pm, room 3211 (Shabolovka str. 26) ICEF held the Research Seminar.
Speaker: Nikolaos Kokonas (University of Bath)
Theme: "Okun's law, self-fulfilling fluctuations and automatic stabilizers" joint with Paulo Santos Monteiro

 

Abstract: We develop a business cycle model including indivisible labor, endogenous participation and involuntary unemployment. To overcome indivisibilities, optimal allocations involve lotteries over labor force participation and consumption as in Hansen (1985), while shifts in involuntary unemployment are due to search externalities as in Diamond (1982), and are consistent with Okun's Law. It is shown that self-fufillling fluctuations may emerge, as expectations of high unemployment reduce participation and output which, in turn, validates the high unemployment expectations. Unemployment insurance is shown to make local indeterminacy less likely and, therefore, is a powerful automatic stabilizer. 

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