%0 Report
        %A Dufourt, Frédéric
%A Lloyd-Braga, Teresa
%A Modesto, Leonor
        %T Expected Inflation, Sunspots Equilibria and Persistent Unemployment Fluctuations
        %D 2009
        %8 2009 Jul
        %I Institute of Labor Economics (IZA)
        %C Bonn
        %7 IZA Discussion Paper
        %N 4302
        %U https://www.iza.org/publications/dp4302
        %X We propose and estimate a model where unemployment fluctuations result from self-fulfilling changes in expected inflation (sunspot shocks) affecting nominal wage bargaining. Since the estimated parameters fall near the locus of Hopf bifurcations, country-specific expected inflation shocks can replicate the strong persistence and heterogeneity observed in European unemployment rates. They also generate positive comovements in macroeconomic variables and a large relative volatility of consumption. All these features, hardly accounted for by standard sunspot-driven models, are explained here by the fact that liquidity constrained workers, facing earnings uncertainty in the context of imperfect unemployment insurance, choose to consume their current income.
        %K unemployment fluctuations
%K sunspots equilibria
%K expected inflation
%K wage bargaining