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On Deficits and Unemployment

Author

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  • Jonathan Eaton
  • Samuel Kortum
  • Brent Neiman

Abstract

Between 2007 and 2011 unemployment rose substantially in most European countries. During the same period a number of European countries experienced large declines in their external deficits. We use a general equilibrium, thirty-four country Ricardian model with potential wage inflexibility to explore the relationships among external adjustment, relative gdp, and unemployment over this period. Our analysis provides a decomposition between how increased unemployment and relative wage declines bore the burden of adjustment to a lower external deficit. Where unemployment played the larger role, declines in nominal gdp were more fully reflected in real gdp.

Suggested Citation

  • Jonathan Eaton & Samuel Kortum & Brent Neiman, 2013. "On Deficits and Unemployment," Revue économique, Presses de Sciences-Po, vol. 64(3), pages 405-420.
    • Handle: RePEc:cai:recosp:reco_643_0405
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    Cited by:

    1. Andres Rodriguez-Clare & Mauricio Ulate & Jose P. Vasquez, 2020. "New-Keynesian Trade: Understanding the Employment and Welfare Effects of Trade Shocks," Working Papers 265, Princeton University, Department of Economics, Center for Economic Policy Studies..
    2. Jonathan Eaton & Samuel Kortum & Brent Neiman & John Romalis, 2016. "Trade and the Global Recession," American Economic Review, American Economic Association, vol. 106(11), pages 3401-3438, November.

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