On deficits and unemployment

Jonathan Eaton, Samuel Kortum, Brent Neiman

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)405-420
Number of pages16
JournalRevue Economique
Volume64
Issue number3
DOIs
StatePublished - May 1 2013

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

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