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Labor adjustment costs and complex eigenvalues

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  • Xavier Fairise
  • Patrick Fève

Abstract

Aggregate variables display both persistence and damped oscillations in response to temporary external shocks. The standard real business cycles (RBC) model cannot explain these patterns, because its stable eigenvalues are positive and real. We demonstrate that this model with labor adjustment costs can yield complex eigenvalues. However, numerical experiments suggest that the model cannot display distinguishable damped oscillations of aggregate variables.
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Suggested Citation

  • Xavier Fairise & Patrick Fève, 2006. "Labor adjustment costs and complex eigenvalues," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(1), pages 95-110, September.
    • Handle: RePEc:spr:joecth:v:29:y:2006:i:1:p:95-110
    DOI: 10.1007/s00199-005-0007-0
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    1. Hercowitz, Zvi & Sampson, Michael, 1991. "Output Growth, the Real Wage, and Employment Fluctuations," American Economic Review, American Economic Association, vol. 81(5), pages 1215-1237, December.
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    4. Costas Azariadis & James B. Bullard & Lee E. Ohanian, 1998. "Complex eigenvalues and trend-reverting fluctuations," Staff Report 255, Federal Reserve Bank of Minneapolis.
    5. Fairise, Xavier & Langot, Francois, 1994. "Labor productivity and the business cycle: Can R.B.C. models be saved?," European Economic Review, Elsevier, vol. 38(8), pages 1581-1594, October.
    6. Magill, Michael J P, 1979. "The Stability of Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(3), pages 577-597, October.
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    8. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-273, April.
    9. Cassing, Shirley & Kollintzas, Tryphon, 1991. "Recursive Factor of Production Interrelations and Endogenous Cycling," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(2), pages 417-440, May.
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    Cited by:

    1. Matsue, Toyoki, 2019. "Employment fluctuations in a dynamic model with long-term and short-term contracts," MPRA Paper 97545, University Library of Munich, Germany.
    2. Chang, Juin-jen & Huang, Chun-chieh & Lai, Ching-chong, 2007. "Working hours reduction and wage contracting style in a dynamic model with labor adjustment costs," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 971-993, March.

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    More about this item

    Keywords

    Labor adjustment costs; Business cycle model; Complex eigenvalues; C12; C52;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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