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Market Frictions, Money and Economic Cycle


In friction-free cyclical models monetary shocks cause effects on the employment situation which are contradictory to empirical experience. Can this circumstance be changed by market frictions such as market power, costs of price adjustment and wage contracts? Initial simulation results based on calculable cyclical models show that this is in fact possible. In the search for persistence mechanisms, learning by doing and human capital investments, among other things, are taken into account.

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