IMPERFECT COMPETITION, CAPITAL SHORTAGES AND UNEMPLOYMENT PERSISTENCE

We construct a model integrating the traditions of imperfect competiti on macroeconomics and real business cycles. For this we study a dynami c economy with optimizing households, firms and trade unions subject t o stochastic shocks. We can derive closed form solutions far the behav iour of all agents. It is found that the combination of capital shorta ges and imperfect competition in labor markets can give rise to unempl oyment, and that this unemployment is quite persistent, even when the underlying shocks are not.