A Hicksian two-sector model of unemployment, cycles, and growth

This paper analyzes cycles and growth using a dynamic version of the Hicksian two-sector model. Two types of friction, nominal wage stickiness and non-shiftability of capital, are present. It is found that sectoral imbalances caused by the non-shiftability of capital are corrected in finite time through investment allocation and the possibility of cycles depends on the speed of nominal wage adjustment. The arriving order of the turning points of such variables as the nominal and real wage rates, investment, employment, output, and capital is established. (C) 1998 Elsevier Science B.V. All rights reserved.