Employment protection can amplify business cycles: IMF paper

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Reducing labour firing costs can reduce output volatility significantly in emerging economies during a recession, according to an International Monetary Fund paper published on Thursday.

Ruy Lama and Carlos Urrutia, the paper's authors, build a small open economy and real business cycle model with labour market frictions to evaluate the role of employment protection in shaping business cycles in emerging economies. The model features matching frictions and an endogenous selection effect by which

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