Bubbles, Wage Rigidity, and Persistent Slumps

10 Pages Posted: 12 Dec 2016 Last revised: 12 Jul 2018

Andrew Hanson

University of North Carolina (UNC) at Chapel Hill

Toan Phan

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: December 4, 2016

Abstract

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

Hanson, Andrew and Phan, Toan, Bubbles, Wage Rigidity, and Persistent Slumps (December 4, 2016). Economic Letters, 151(2), 2017, pp. 66-70. Available at SSRN: https://ssrn.com/abstract=2883294

Andrew Hanson

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Toan Phan (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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