The author explains how self-enforcing labour contracts can enhance the performance of macroeconomic models. He exposes the benefits of using these dynamic contracts to account for some puzzling macroeconomic facts regarding the dynamics and persistence of employment, consumption and output. In particular, the dynamic properties of employment and consumption differ from those derived with the standard flexible-wage model, in a way that could shed new light on the dynamics puzzle typical of macroeconomic models.

Also published as:

La poignée de main invisible et la persistance des cycles d’affaires : un survol
L’Actualité économique (0001-771X (print); 1710-3991 (online))
December 2003. Vol. 79, Iss. 4, pp. 563-81