A HICKSIAN 2-SECTOR MODEL OF UNEMPLOYMENT, CYCLES, AND GROWTH

This paper analyzes cycles and growth using a dynamic version of the H icksian two-sector model. Two types of friction, nominal wage stickine ss and non-shiftability of capital, are present. It is found that sect oral imbalances caused by the non-shiftability of capital are correcte d in finite time through investment allocation and the possibility of cycles depends on the speed of nominal wage adjustment. The arriving o rder of the turning points of such variables as the nominal and real w age rates, investment, employment, output, and capital is established. (C) 1998 Elsevier Science B.V. All rights reserved.