Output volatility rises with firing costs, says Central Bank of Peru paper

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High firing costs in emerging economies leads to greater output volatility and reduces the cleansing impact on labour markets during recessions, according to a Central Bank of Peru paper published on January 17.

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

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