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Volatility, Growth and Labour Elasticity

Author

Listed:
  • Barbara Annicchiarico

    (University of Rome ‘Tor Vergata’, Italy)

  • Luisa Corrado

    (University of Cambridge, UK and University of Rome ‘Tor Vergata’, Italy)

  • Alessandra Pelloni

    (University of Rome ‘Tor Vergata’ and The Rimini Centre of Economic Analisys, Italy)

Abstract

We study the relationship between growth and variability in a DSGE model with nominal rigidities and growth driven by learning-by-doing. We show that this relationship may be positive or negative depending on the impulse source of fluctuations A key role is also played by the Frisch elasticity of labour supply and by institutional features of the labour market. Our general findings are that monetary shocks volatility will generally have a negative effect on growth, while the opposite tends to be true for fiscal and productivity shocks. These findings are somehow consistent with the existing empirical evidence: data show, in fact, a somewhat ambiguous relationship between output growth and real variability, but a generally negative relationship between output growth and nominal variability.

Suggested Citation

  • Barbara Annicchiarico & Luisa Corrado & Alessandra Pelloni, 2008. "Volatility, Growth and Labour Elasticity," Working Paper series 32_08, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:32_08
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    More about this item

    Keywords

    Growth; Volatility; Monetary and Real Shocks; Labour Supply Elasticity; Second-Order Approximation Methods;
    All these keywords.

    JEL classification:

    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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