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


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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