ABSTRACT
This chapter focuses on unemployment, growth and debt dynamics in the aftermath of such a total factor productivity (TFP) shock. It also focuses on Italy's disappointing economic performance in terms of growth and unemployment in the aftermath of the global financial crisis and thus abstract from the additional downturn caused by the government debt crisis. The chapter explores the search unemployment, coupled with wage bargaining, into an endogenous growth model to analyse the effects of a permanent and a temporary negativeTFP shock on growth, unemployment and public debt. An important issue to arise with respect to a TFP shock is its impact on unemployment and the government debt GDP ratio. It analyses two types of total factor productivity shocks. First, investigates the effects of a permanent drop in TFP. Second, considers a drop in TFP that is temporary in the sense that after the shock the level of TFP gradually reverts to an initial benchmark value.
