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The Macroeconomics of Labour and Credit Market Imperfections

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Author Info
Wasmer, Etienne
Weil, Philippe

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Abstract

Labour market frictions are not the only possible source of high unemployment. Credit market imperfections, driven by microeconomic frictions and influenced by macroeconomic factors, could also be to blame. To develop this idea in a simple and tractable macroeconomic model, we treat credit and labour market imperfections in a symmetrical way. Accordingly, we introduce specificity in credit relationships, and assume that credit to potential entrepreneurs is rationed due to endogenous search frictions, in the spirit of Diamond (1990). These imperfections mirror job search frictions in the labour market. We study the determination of equilibrium unemployment in the presence of credit market frictions both with exogenous and endogenous wages. We explore a number of possible extensions or extensions: endogenous destruction, monetary policy and the short-run effects of financial liberalization.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3334.

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Date of creation: Apr 2002
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Handle: RePEc:cpr:ceprdp:3334

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Related research
Keywords: capitalism; credit and search frictions; monetary policy; unemployment;

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Find related papers by JEL classification:
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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  22. Sandra E. Black & Philip E. Strahan, 2001. "The Division of Spoils: Rent-Sharing and Discrimination in a Regulated Industry," American Economic Review, American Economic Association, vol. 91(4), pages 814-831, September. [Downloadable!] (restricted)
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