Title
Informality and macroeconomic fluctuations : a small open economy new Keynesian DSGE model with dual labour markets Informality and macroeconomic fluctuations : a small open economy new Keynesian DSGE model with dual labour markets
Author
Faculty/Department
Faculty of Applied Economics
Publication type
report
Publication
Antwerp :UA, [*]
Subject
Economics
Source (series)
Research paper / UA, Faculty of Applied Economics ; 2013:002
Volume/pages
55 p.,
Carrier
E
Target language
English (eng)
Affiliation
University of Antwerp
Abstract
How do key macroeconomic variables of a small open economy with segmented labour markets behave in response to domestic and external shocks? In this paper we attempt to address this question by modeling the coexistence of a formal labour market with higher wage rates and search frictions, and an informal labour market with the opposite attributes in the standard multi-sector small open economy New Keynesian DSGE model. The model is calibrated for a typical Sub-Saharan African economy and the behaviour of key macroeconomic variables in response to domes- tic and external shocks is analysed. The results show that almost all the impulse response functions of our model are consistent with what theory predicts and what other empirical works show about the responses of low income countries to the shocks we consider. However, our results do not seem to corroborate the widely held wisdom that the existence of an informal sector plays a stabilizing role in the event of shocks.
Full text (open access)
https://repository.uantwerpen.be/docman/irua/15e36f/5108e7e9.pdf
Handle