TY  - RPRT
        AU  - Dufourt, Frédéric
AU  - Lloyd-Braga, Teresa
AU  - Modesto, Leonor
        TI  - Expected Inflation, Sunspots Equilibria and Persistent Unemployment Fluctuations
        PY  - 2009/Jul/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 4302
        UR  - https://www.iza.org/publications/dp4302
        AB  - 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.
        KW  - unemployment fluctuations
KW  - sunspots equilibria
KW  - expected inflation
KW  - wage bargaining
        ER  -