Understanding Unemployment Dynamics in the Transition. The Role of Aggregate Demand and Investment
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Abstract
This paper proposes a theoretical two-sectors growth model for an economy in transition. The model stresses that long term output and employment dynamics as well as the actual transition pace are affected by demand-side factors and their interaction with supply-side factors. It derives a set of feasible dynamic equilibrium paths, that is several steady-state equilibrium values for the unemployment rate. The paper shows the key role of the demand management policy in selecting the actual growth path and transition pace.
