External economies, population shocks and the labor markets: a RBC model for Spain

Resumen

This paper, in the spirit of the most relevant extensions of the RBC theory, modifies one of the microeconomic assumptions underlying the standard RBC models and incorporates a new uncertainty source. Taking as starting point the Christiano and Eichenbaum (1992) model, with government consumption shocks and indivisible labor, we introduce external economies and/or increasing returns to scale at the production technology firm level. We conclude that, under these assumptions, working-age population shocks are significant in explaining economic fluctuations. Specifically, we find that our model with working-age population shocks allows to solve the labor market puzzles, and for the particular case of the spanish economy, provides a good approximation for the high private consumption volatility. In this respect, the model we present contributes to the important RBC research program stream focusing on the unexplained labour market features and to the recent empirical literature on the spanish business cycle.