A Heterogeneous Agent New Keynesian Model of Search Frictions and Public Sector Employment by Pavlos Balamatsias

Join us for this weeks Macroeconomics Research Seminar, Summer Term 2023.

Pavlos Balamatsias, will present this weeks Macroeconomics seminar on A Heterogeneous Agent New Keynesian Model of Search Frictions and Public Sector Employment.

Abstract

How does increasing public sector employment affect aggregate output and employment and can it be quantitatively useful? I answer these questions in a Heterogeneous Agent New Keynesian model of heterogeneous workers' households and incomplete markets creating uninsurable unemployment risk, homogeneous capitalists' households, monopolistic competition and sticky prices in the goods market, a Search and Matching labour market with inelastic vacancy creation and public sector firms using public sector employment and government expenditure on consumption. This setup produces more realistic results than papers omitting some model blocks and effects, so I can study all the effects of increasing public sector firms' output and public sector employment, consisting of a Direct Effect, a Labour Market Effect, a Redistribution Effect, Indirect Aggregate Demand Effects and an Unemployment Risk Effect that interact and propagate through the economy. Applying my model to the US, I find that these policies can increase aggregate output and employment, and if monetary policy is less responsive, crowd in private sector employment, with an aggregate output multiplier of 1.409 and an employment multiplier of 1.0445; alternatively, government expenditure on consumption yields smaller aggregate output and negative employment multipliers. 

This seminar will be held on campus in the Economics Common Room at 4pm on Tuesday 9 May. This event is open to all levels of study and is also open to the public. To register your place, please contact the seminar organisers.

This event is part of the Macroeconomics Research Seminar Series.