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Essays on labour market frictions and fiscal policy

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en
dc.contributor.author Obstbaum, Meri
dc.date.accessioned 2013-11-26T13:31:34Z
dc.date.available 2013-11-26T13:31:34Z
dc.date.issued 2012
dc.identifier.isbn 978-952-60-4735-5
dc.identifier.issn 1799-4934
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/11561
dc.description.abstract This thesis analyzes labour market fluctuations and fiscal policy from the perspective of a small monetary union member state, namely Finland. The first essay identifies how frictions in the labour market shape the responses of the economy to government spending shocks. The nature of offsetting fiscal measures is found to be critical for the effects of fiscal stimulus, due to the different effects of different tax instruments on the labour market. Shifting the debt-stabilizing burden towards distortionary labour taxes has detrimental effects on the labour market outcome and on general economic performance in a flexible wage regime. The results indicate that wage rigidity increases the effectiveness of fiscal policy in the short term but leads to a worse longer term development including unemployment above steady state levels. The analysis suggests that a closer look at the functioning of labour markets may help to identify fiscal policy transmission channels not captured by the standard New Keynesian model. The second essay investigates the unemployment volatility puzzle in Finland. The ability of the New Keynesian DSGE model with labour market frictions to reproduce key volatilities found in Finnish business cycle data is explored. We offer some plausible explanations of the "Shimer puzzle" for the Finnish case. Specific emphasis is put on modelling the wage bargaining framework as well as the cyclical behaviour of distortionary labour taxes. Wage rigidity is found to be a promising candidate for explaining Finnish labour market volatilities in the period 1994-2010. The much higher volatilities of the period 1981-1993 are also discussed. We find that most of the specific features that characterised the Finnish economy in that period, including during the exceptionally deep recession of the early 1990's, are such that they increase the magnitude of labour market fluctuations in the model economy. The third essay is a first attempt to estimate a DSGE model with labour market frictions and wage rigidity for the Finnish economy. The contribution is twofold. First, estimates of nominal rigidities and wage indexation that are well in line with the existing literature are obtained, and they give an economically plausible picture of the Finnish economy. Wage rigidity is found to be empirically relevant for the business cycle. A detailed assessment of the degree of wage rigidity and indexation in different model specifications is provided. Second, the estimation approach sheds more light on the magnitude and effects of labour market shocks. Labour market shocks are found to importantly drive fluctuations of labour market variables but they also account for a non-trivial share of output fluctuations. en
dc.format.extent 215 s
dc.format.mimetype application/pdf en
dc.language.iso en en
dc.publisher Aalto University en
dc.publisher Aalto-yliopisto fi
dc.relation.ispartofseries Aalto University publication series. DOCTORAL DISSERTATIONS fi
dc.relation.ispartofseries 105/2012 fi
dc.title Essays on labour market frictions and fiscal policy en
dc.type G5 Artikkeliväitöskirja fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Taloustieteen laitos fi
dc.identifier.urn URN:ISBN:978-952-60-4735-5
dc.type.dcmitype text en
dc.programme.major Taloustiede fi
dc.programme.major Economics en
dc.type.ontasot Väitöskirja (artikkeli) fi
dc.type.ontasot Doctoral dissertation (article-based) en
dc.contributor.supervisor Haaparanta, Pertti, professor
dc.opn Vilmunen, Jouko, Doctor of Social Sciences, Bank of Finland, Finland
dc.subject.helecon finanssipolitiikka
dc.subject.helecon työmarkkinat
dc.subject.helecon fiscal policy
dc.subject.helecon labour market
dc.date.defence 2012-09-07
dc.dissid 458
dc.identifier.bibid 614696


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