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Federal Reserve Bank of Chicago
Working Paper Series
Firing costs and business cycle fluctuations
Marcelo Veracierto
Abstract

This paper evaluates to what extent the introduction of firing costs can affect the aggregate dynamics of a neoclassical growth model with heterogeneous establishments. Similarly to the previous literature, firing costs are found to have large steady-state effects. However, they have no important effects on business cycle dynamics: Aggregate employment fluctuations are somewhat smaller when the firing costs are introduced, but most of the effects turn out to be insignificant.


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Marcelo Veracierto, Firing costs and business cycle fluctuations, Federal Reserve Bank of Chicago, Working Paper Series WP-03-29, 2003.
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Keywords: Business cycles
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