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Financial Market Imperfections, Labor Market Imperfections and Business Cycles

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  • Arnold, Lutz G

Abstract

A Greenwald-Stiglitz (1993) style rational expectations business cycle model is introduced in which uncorrelated productivity shocks or monetary shocks generate autocorrelated employment fluctuations due to financial constraints. The propagation mechanism is carefully modeled: because of capital market imperfections (only standard debt contracts are traded), firms' labor demand changes in response to changes in their balance-sheet position; because of labor market imperfections (efficiency wages), employment and unemployment fluctuate in response to shifts in labor demand. The virtue of the model is its simplicity. Despite the fact that unemployment is endogenous, the dynamic behavior of the model under rational expectations can be characterized analytically. Copyright 2002 by The editors of the Scandinavian Journal of Economics.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 104 (2002)
Issue (Month): 1 ()
Pages: 105-24

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Handle: RePEc:bla:scandj:v:104:y:2002:i:1:p:105-24

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  1. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers, Edinburgh School of Economics, University of Edinburgh 1995-5, Edinburgh School of Economics, University of Edinburgh.
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  7. Arnold, Lutz G., 2002. "Business Cycle Theory," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199256822, October.
  8. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(1), pages 35-52, January.
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Cited by:
  1. Donatella Gatti & Christophe Rault & Anne-Gael Vaubourg, 2009. "Unemployment and Finance: How do Financial and Labour Market Factors Interact?," CESifo Working Paper Series 2901, CESifo Group Munich.
  2. Giorgio Calcagnini & Annalisa Ferrando & Germana Giombini, 2013. "Multiple Market Imperfections, Firm Profitability and Investment," Working Papers, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini 1305, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2013.
  3. Donatella Gatti & Anne-Gael Vaubourg, 2010. "Credit and Unemployment: Do Institutions Matter?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 11(1), pages 37-43, 04.
  4. Bhattacharya, Joydeep & Chakraborty, Shankha, 2003. "What Do Information Frictions Do?," Staff General Research Papers 10254, Iowa State University, Department of Economics.
  5. Spiros Bougheas & Richard Upward, 2013. "Endogenous participation in imperfect labor and capital markets," Economics Bulletin, AccessEcon, vol. 33(4), pages 2454-2464.
  6. Filipa Fernandes & Alexandros Kontonikas & Serafeim Tsoukas, 2014. "On the real effects of financial pressure: Evidence from euro area firm-level employment during the recent financial crisis," Working Papers, Business School - Economics, University of Glasgow 2014_09, Business School - Economics, University of Glasgow.
  7. repec:hal:psewpa:halshs-00566792 is not listed on IDEAS
  8. repec:hal:wpaper:halshs-00566792 is not listed on IDEAS

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