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Hysteresis in unemployment: A confidence channel

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  • Dmitry Plotnikov

Abstract

This paper develops a general equilibrium rational expectations model with search and multiple equilibria where aggregate shocks have a permanent effect on the unemployment rate. If agents’ wealth decreases, for either fundamental (productivity) or non‐fundamental (sunspot) reasons, the unemployment rate can increase for a potentially indefinite period. This makes the unemployment rate dynamics path dependent.

Suggested Citation

  • Dmitry Plotnikov, 2019. "Hysteresis in unemployment: A confidence channel," International Journal of Economic Theory, The International Society for Economic Theory, vol. 15(1), pages 109-127, March.
    • Handle: RePEc:bla:ijethy:v:15:y:2019:i:1:p:109-127
    DOI: 10.1111/ijet.12207
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    Cited by:

    1. Roger E A Farmer, 2020. "The importance of beliefs in shaping macroeconomic outcomes," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 36(3), pages 675-711.
    2. Farmer, Roger E.A. & Platonov, Konstantin, 2019. "Animal spirits in a monetary model," European Economic Review, Elsevier, vol. 115(C), pages 60-77.
    3. Farmer, Roger, 2019. "The Indeterminacy School in Macroeconomics," CEPR Discussion Papers 13745, C.E.P.R. Discussion Papers.
    4. Roger E A Farmer, 2019. "The Indeterminacy Agenda in Macroeconomics," National Institute of Economic and Social Research (NIESR) Discussion Papers 507, National Institute of Economic and Social Research.

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