Prices, productivity and irregular cycles in a walrasian labour market

A standard Cobb Douglas labour market model is used to examine the role of changes in prices and productivity on the stability. It is shown that in this walrasian labour market deterministic endogenous economic fluctuations, which are seemingly stochastic, emerge. Therefore it may be argued that the controversial - in empirical as well as theoretical recent literature – co-movement between variables does not necessarily ground on stochastic shocks on prices and technology as retained in the prevailing business cycle theory. In particular, we show that negative shocks on prices and productivity are always destabilising and trigger robust chaotic fluctuations.