Nonlinear Deterministic Labor Market Theories of Business Cycles

In the long run, prices and wages are completely adjusted to their equilibrium values, while in the short run they can be assumed as fixed. In a business cycle perspective (and/or in intermediate-run models1), one needs a dynamic specification of how prices and wages change. In this way, the starting point of our analysis of business cycles interfaces with the Phillips curve debate, and one can introduce into the analysis a wage function whose dynamics can be conceived either in real or in nominal terms. Moreover, the models that we have discussed in the last sections of the previous chapter can be generalized in order to include inflation, and different structures are obtained according to the way in which the labor market is specified.