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Credit, Vacancies and Unemployment Fluctuations

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  • Nicolas Petrosky-Nadeau

Abstract

The propagation properties of the standard search and matching model of equilibrium unemployment are significantly altered when vacancy costs require some external financing on frictional credit markets. The latter induce variation in the shadow cost of external funds of the cycle that greatly increase the elasticity of vacancy postings to productivity through two distinct channels: (i) a cost channel - a lowered shadow cost during an upturn as credit constraints are relaxed increases the incentive to post vacancies; (ii) a wage channel - the improved bargaining position of firms afforded by the lowered cost of vacancies limits of the upward pressure of market tightness on wages. As a result, the model can match the observed volatility of unemployment, vacancies and labor market tightness. Moreover, the progressive easing of financing constraints to innovations generates persistence in the response of market tightness and vacancies, a robust feature of the data and shortcoming of the standard model.

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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2009-E27.

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Date of creation: Nov 2009
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Handle: RePEc:cmu:gsiawp:1258554433

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Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/

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Citations

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Cited by:
  1. Nicolas Petrosky-Nadeau & Etienne Wasmer, . "The cyclical volatility of labor markets under frictional financial markets," GSIA Working Papers 2010-E1, Carnegie Mellon University, Tepper School of Business.
  2. Nicolas Petrovsky-Nadeau & Etienne Wasmer, 2011. "Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions," Sciences Po publications info:hdl:2441/5l6uh8ogmqi, Sciences Po.
  3. Nicolas Petrosky-Nadeau, . "TFP during a Credit Crunch," GSIA Working Papers 2010-E70, Carnegie Mellon University, Tepper School of Business.
  4. Tommaso Monacelli & Vincenzo Quadrini & Antonella Trigari, 2011. "Financial Markets and Unemployment," NBER Working Papers 17389, National Bureau of Economic Research, Inc.
  5. Petra Marotzke, 2011. "Macroeconomic Stability and Wage Inequality: A Model with Credit and Labor Market Frictions," Working Paper Series of the Department of Economics, University of Konstanz 2011-38, Department of Economics, University of Konstanz.
  6. Joseph Mullins & Gaston Navarro & Julio Blanco, 2013. "Equilibrium Default and Slow Recoveries," 2013 Meeting Papers 694, Society for Economic Dynamics.
  7. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h48226q18 is not listed on IDEAS
  8. Francesco Zanetti & Haroon Mumtaz, 2013. "The Effect of Labor and Financial Frictions on Aggregate Fluctuations," Economics Series Working Papers 690, University of Oxford, Department of Economics.
  9. Yahong Zhang, 2011. "Financial Factors and Labour Market Fluctuations," Working Papers 11-12, Bank of Canada.
  10. Etienne Wasmer & Nicolas Petrosky-Nadeau, 2011. "Propagation in a Model of Goods, Labor and Financial Market Frictions," 2011 Meeting Papers 119, Society for Economic Dynamics.
  11. Dromel, Nicolas & Kolakez, Elie & Lehmann, Etienne, 2009. "Credit Constraints and the Persistence of Unemployment," IZA Discussion Papers 4501, Institute for the Study of Labor (IZA).
  12. Atanas Hristov, 2010. "The High Sensitivity of Employment to Agency Costs: The Relevance of Wage Rigidity," SFB 649 Discussion Papers SFB649DP2010-044, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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