Job insecurity, equilibrium determinacy and E-stability in a New Keynesian model with asymmetric information. Theory and simulation analysis
Abstract
Departing from the dominant approach focused on individual and meso-level determinants, this paper develops a macroeconomic formalization of job insecurity within a New Keynesian framework in which the standard IS-NKPC-Taylor rule block is augmented with labor-market frictions. The model features partially informed private agents who receive a noisy signal about economic fundamentals from a fully informed public sector. When monetary policy satisfies the Taylor principle, the equilibrium is unique and determinate. However, the release of news about current or future fundamentals can generate a "Paradox of Transparency" through general-equilibrium interactions between aggregate demand and monetary policy. When the Taylor principle is violated, belief-driven equilibria may emerge. Validation exercises based on the Simulated Method of Moments support the empirical plausibility of the model's key implications.
Keywords
Cite
@article{arxiv.2512.13627,
title = {Job insecurity, equilibrium determinacy and E-stability in a New Keynesian model with asymmetric information. Theory and simulation analysis},
author = {Luca Vota and Luisa Errichiello},
journal= {arXiv preprint arXiv:2512.13627},
year = {2025}
}