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Can animal spirits explain the dynamics of European unemployment?

Published online by Cambridge University Press:  17 August 2016

Patrick Fève  and
François Langot
Patrick Fève
Affiliation:
Université de Nantes, LEN-C3E and CEPREMAP
François Langot
Affiliation:
Université du Maine, GAINS and CEPREMAP
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Summary

We estimate a model with equilibrium unemployment explained by a search process on the labor market. We find that the matching function has increasing returns to scale and we show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy. In particular, self-fulfilling beliefs, or “animal spirits”, can explain the fluctuations around the Beveridge curve observed in the French, German and U.K. economies.

Résumé

Résumé

Nous estimons un modèle où le chômage d’équilibre est expliqué par un processus de recherche. Nous trouvons que la fonction d’appariement a des rendements croissants et montrons que ce modäle peut engendrer des fluctuations sans que l’économie ne soit perturbée par des chocs sur les fondamentaux. Ainsi, des croyances auto-réalisatrices, ou des “esprits animaux”, peuvent expliquer les fluctuations autour de la courbe de Beveridge, observées en Allemagne, en France ou au Royaume-Uni.

Keywords

C52C51E32C52C51E32
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 62 , Issue 3-4 , 1996 , pp. 413 - 441
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1996 

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Footnotes

(*)

We thank G. Demange, J. Gali, C. Gourieroux, R. Guesnerie, P.Y. Hénin, J.P. Laffargue, G. Laroque, O. Licandro, D. Mortensen, G. Pfann, J.M. Tallon and C. Wyplosz for fruitful comments. This version has also benefited from discussions during presentation at the Society of Economic Dynamics and Control 1995 congress in Barcelona, at the “Human Capital Mobility” workshop 1995 in Maastricht, at the Winter Meeting of the Econometric Society 1996 in Copenhagen, at the T2M conference 1996 in Paris and at MAD, DELTA and CREST seminars. Suggestions by anonymous referees were extremely helpful. All remaining mistakes are our own.

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