Bubbles, Wage Rigidity, and Persistent Slumps
10 Pages Posted: 12 Dec 2016 Last revised: 12 Jul 2018
Date Written: December 4, 2016
We embed downward wage rigidity into a rational bubble model. We analytically characterize how the collapse of bubbles can interact with wage rigidity to generate deep and protracted recessions with involuntary unemployment, such as those in Japan or Spain.
Keywords: rational bubbles, wage rigidity, unemployment, long recession
JEL Classification: E2, E3, E4
Suggested Citation: Suggested Citation