Job insecurity and equilibrium determinacy in a rational expectations, New Keynesian model with asymmetric information. A theoretical analysis

Despite the importance of this variable in the macroeconomic context, current research on job insecurity remains mainly confined to its non-systemic dimension. The research aim of this paper is to identify the short-run and long-run macroeconomic determinants of job insecurity in the presence of asymmetric information between public and private agents, informative shocks, and different degrees of institutional communication transparency. To accomplish this goal, a small-scale, rational expectations, New Keynesian model is proposed in which limitedly informed households and firms receive a potentially noisy informative signal about the unobservables from fully informed government and central bank. It is found that, notwithstanding the fulfillment of the Taylor principle, if public agents transfer all the available information to the private agents without communication ambiguities, the model admits a unique, stable equilibrium path along which the 'Paradox of Transparency' can emerge. Otherwise, the model's dynamics become unpredictable in terms of equilibrium existence and multiplicity, and job insecurity plays a potentially fundamental role in equilibrium determinacy. Appropriate policy recommendations are discussed.