Abstract In this paper we present a model of flexicurity capitalism that exhibits a second labor market with the government as an employer of first resort, where all workers not employed by firms in the private sector find meaningful employment. We show that the model exhibits a unique interior...

In this paper we study the implications of the present broad banking system for macroeconomic stability. We show that when commercial banks are allowed to trade in financial assets (here equities) as a substitute for traditional lending, the macroeconomic system is likely to be an unstable one....

Abstract In this paper the role of behavioral forecasting rules of chartist and fundamentalist type for the dynamic macroeconomic stability of a two-country system is investigated. The main result of the paper is that for large trend-chasing parameters in the chartist rule used in the FX market,...

In this paper the role of different types of labor market frictions in the dynamics of output and inflation is investigated. For this purpose, the Keynes–Goodwin model discussed in Chen et al. (2006) and Franke et al. (2006) is extended by a labor search and matching module along the lines of...

After the financial market meltdown of the years 2007–2008 the Obama administration responded with large fiscal stimulus package, yet the reaction to this stimulus has been diverse. Some predicted a multiplier effect in the order of 1.5, others argued that the multiplier will be less than 0.5....

Recent history suggests that many boom–bust cycles are naturally driven by linkages between the credit market and asset prices. Additionally, new structured securities have been developed, e.g., MBS, CDOs, and CDS, which have acted as instruments of risk transfer. We show that there is a...

Based on the loss aversion model of asset pricing, this paper explores empirical evidence on the prospect theory for stock markets with time-series data. The analysis, using a state-space model, shows that previous gains and losses may have asymmetric effects on investment behavior, pointing to...