Unemployment, credit rationing, and capital accumulation: a tale of two frictions
AbstractThis paper develops a model in which two information frictions are embedded into an otherwise conventional neoclassical growth model; an adverse selection problem in the labor market and a costly state verification problem in the credit market. The former allows equilibrium unemployment to arise endogenously while the latter is responsible for equilibrium credit rationing. This structure is used to investigate a theoretical link between the level of unemployment and the extent of credit rationing (and capital formation). The presence of the labor market friction is enough to generate scope for multiple steady state equilibria. The model also generates a large class of endogenous cyclical and chaotic dynamical equilibria. Development trap phenomena may also appear.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 12 (1998)
Issue (Month): 3 ()
Note: Received: April 10, 1998; revised version: May 20, 1998
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Other versions of this item:
- Bhattacharya, Joydeep & Betts, Caroline, 1998. "Unemployment, Credit Rationing, and Capital Accumulation: A Tale of Two Frictions," Staff General Research Papers 5104, Iowa State University, Department of Economics.
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
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- Daitoh, Ichiroh, 2003. "Financial liberalization, urban unemployment and welfare: some implications of the artificial low interest rate and the high wage rate policies in LDCs," Journal of Development Economics, Elsevier, vol. 72(1), pages 163-179, October.
- António Antunes & Tiago Cavalcanti & Anne Villamil, 2006.
"Computing General Equilibrium Models with Occupational Choice and Financial Frictions,"
SCAPE Policy Research Working Paper Series
0611, National University of Singapore, Department of Economics, SCAPE.
- Antunes, António & Cavalcanti, Tiago & Villamil, Anne, 2008. "Computing general equilibrium models with occupational choice and financial frictions," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 553-568, July.
- AntÃƒÂ³nio Antunes & Tiago Cavalcanti & Anne Villamil, 2006. "Computing General Equilibrium Models with Occupational Choice and Financial Frictions," Macroeconomics Working Papers 22560, East Asian Bureau of Economic Research.
- António R. Antunes & Tiago V. de V. Cavalcanti & Anne Villamil, 2006. "Computing General Equilibrium Models with Occupational Choice and Financial Frictions," Working Papers w200615, Banco de Portugal, Economics and Research Department.
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