The animal spirits hypothesis and the Benhabib-Farmer condition for indeterminacy

This paper provides a self-contained review of the introduction of the animal spirits hypothesis into the infinite horizon optimal growth model. The analysis begins with an economic discussion of Pontryagin’s maximum principles. Thereafter, I develop a version of the increasing-returns Benhabib-Farmer model by showing the possible sub-optimality of the central planner solution and deriving the bifurcation condition for indeterminacy. Moreover, I give some insights on how to model intrinsic and extrinsic uncertainty. Finally, analysing the equilibrium condition of the labour market, I provide an intuitive rationale for the mechanism that in this model might lead prophecies to be self-fulfilling.Maximum problems in continuous time; indeterminate equilibrium paths; self-fulfilling prophecies.

Expectations, employment and prices: a suggested interpretation of the new 'farmerian' economics

This paper aims at providing a critical assessment of the new ‘Farmerian’ economics, i.e. the recent Farmer’s attempt to provide a new micro-foundation of the General Theory grounded on modern search and business cycle theories. Specifically, I develop a theoretical model that summarizes the main arguments of the suggested approach by showing that a special importance has to be attached to the search mechanism, the choice of units and ‘animal spirits’ modelling. Thereafter, referring to self-made real-business-cycle experiments, I discuss the main empirical implications of the resulting framework. Finally, I consider its policy implications by stressing the problematic nature of demand management interventions and the advisability of extending the role of the central bank in preventing financial bubbles and crashes.Old Keynesian Economics; search; demand constrained equilibrium; Shimer puzzle; economic policy.

Temporary work in Tuscany: A multinominal nested logit analysis

In this paper, distinguishing between the choice of the worker and the choice of the firm, we provide a probabilistic evaluation of the transition from temporary to permanent employment in a regional context. Estimating a Multinomial Nested Logit Model, we found that the transition to a permanent job is far from certain, especially for women and older workers

Optimal Growth with Labor Market Frictions

In this paper, I build a capital accumulation model in which labour has to be alternatively employed in the production of goods or in the recruitment of workers. Within this setting, I show that (i) the intensive measure of capital may converge towards its stationary value in a non-monotonic manner; (ii) Pareto optimal allocations can also be achieved in a decentralized environment in which the wage is indexed to labour market tightness; (iii) the consistency of the wage that implements efficient allocations with the competitiveness of the market for goods relies on vanishing values of the discount rate

Efficiency-Wage Competition: What Happens as the Number of Players Increases?

In this paper, I explore the consequences of extending the number of firms within an efficiency-wage competition setting by showing that the shape of the effort function is crucial in determining key features of the economy. Specifically, when workers are endowed with a concave (sigmoid) effort function, the wage behaviour of firms follows a collusive (competitive) pattern and the symmetric Nash equilibrium is unstable (stable). Moreover, when effort is concave (sigmoid), full employment is characterized by a labour exploitation that increases (decreases) together with the number of productive units required to sustain that allocation. These findings may have intriguing implications for the existence of involuntary unemployment as well as for policies aimed at increasing employment

Wage and Employment Determination in a Dynamic Insider-Outsider Model

open1In this paper, I develop a differential insider-outsider game in which a union of corporative incumbents chooses the wage of its members by taking into account the optimal employment policy of a firm that, in turn, is assumed to decide the number of outsiders to hire in a spot labour market. Under the assumption that incumbents cannot be fired and commit themselves to a given path of wages, I demonstrate that such a game displays an open-loop Stackelberg equilibrium in which the initial stock of insiders pins down the trajectories of incumbents, entrants and insider wages. Moreover, resorting to numerical simulations, I show that adjustments towards the steady-state equilibrium occur through asymmetric oscillations that mimic the decline of union membership and union wage premia observed in the US all over the last twenty years. In addition, I show that the model provides a positive relationship between the labour market power of the insider union and the impatience of the firm.openMarco GuerrazziGuerrazzi, Marc

The Keynesian nexus between the market for goods and the labour market

In this paper, I build on the Keynesian analysis of the market for goods to draw some implications on the behaviour of some typical labour market magnitudes. Specifically, without invoking the assumption of constant nominal wages but making instead the distinction between the aggregate expected demand function and the aggregate expenditure function, I discuss the implied "daily" adjustments of expected and actual real wages that allow to achieve a short-run equilibrium. In addition, I offer a microfoundation for equilibrium unemployment due to deficient demand grounded on modern searching-and-matching theory