Rethinking Optimal Exchange Rate Regimes with Frictional Labour Markets. Macroeconomic Dynamics. 2014:1-32.
Labor Market Institutions and Inflation Volatility in the Euro Area. Journal of Economic Dynamics and Control. 2011;35(5):793-812. Abstract
Labor Market Institutions and Inflation Volatility in the Euro Area
Despite having had the same currency for many years, EMU countries still have quite different inflation dynamics. In this paper we explore one possible reason: country specific labor market institutions, giving rise to different inflation volatilities. When unemployment insurance schemes differ, as they do in EMU, reservation wages react differently in each country to area-wide shocks. This implies that real marginal costs and inflation also react differently. We report evidence for EMU countries supporting the existence of a cross-country link over the cycle between labor market structures on the one side and real wages and inflation on the other. We then build a DSGE model that replicates the data evidence. The inflation volatility differentials produced by asymmetric labor markets generate welfare losses at the currency area level of approximately 0.3% of steady state consumption.
Fiscal Calculus and the Labor Market. The B.E. Journal of Macroeconomics. 2011;11(1):1-25. Abstract
Fiscal Calculus and the Labor Market
The endorsement of expansionary fiscal packages has often been based on the idea that large multipliers can counteract rising and persistent unemployment. We explore the effectiveness of fiscal stimuli in a model with matching frictions and endogenous participation. Results show that hiring subsidies, contrary to increase in government spending, deliver large multipliers, even with distortionary taxation. Those policies increase the incentives to post vacancies, hence employment. Furthermore, by reducing marginal costs they also reduce inflation and increase private consumption.