Capital mobility and labor market volatility
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We used a dynamic two-country optimizing model featuring efficiency wages to analyze the implications of capital mobility for labor market volatility. Capital mobility magnifies the short-run effects of productivity shocks and monetary shocks on employment and the real wage, but dampens the medium-run effects. The overall effects of capital mobility on the volatility and the cyclical properties of employment and the real wage are moderate.
KeywordsCapital mobility Efficiency wages Labor market volatility
JEL ClassificationE44 F36 F41
We thank two anonymous referees for their very helpful comments. The usual disclaimer applies.
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