Capital Market Frictions and the Business Cycle

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Capital Market Frictions and the Business Cycle

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Giulio, NICOLETTI
Olivier, PIERRARD

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Olivier Pierrard

Abstract

We augment a RBC model with capital and labor market frictions. We follow the approach of Wasmer and Weil (2004) which model market imperfections as search processes : firms must sequentially find a match with a bank first and then with a worker in order to start production. We show that the interactions between labor and capital market frictions may generate a financial accelerator or decelerator, depending on a parameter condition. We compare our model with US National Accounts data and with the empirical findings of Dell’Ariccia and Garibaldi (2005) : we find that the financial accelerator as well as real wage rigidities help in improving the statistical propqerties of the model

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Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Université catholique de Louvain, Département des Sciences Economiques Working Paper with number 2006053.

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Length: 29
Date of creation: 15 Nov 2006
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Handle: RePEc:ctl:louvec:2006053

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This paper has been announced in the following NEP Reports:

NEP-ALL-2007-02-10 (All new papers)
NEP-BEC-2007-02-10 (Business Economics)
NEP-DGE-2007-02-10 (Dynamic General Equilibrium)
NEP-MAC-2007-02-10 (Macroeconomics)

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David G. Blanchflower, 2004. "Self-Employment: More may not be better," NBER Working Papers 10286, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Wouter J. den Haan & Garey Ramey & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June. [Downloadable!] (restricted)
Other versions:
- Wouter J. den Haan & Garey Ramey & Joel Watson, 1997. "Job Destruction and Propagation of Shocks," NBER Working Papers 6275, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Wouter J. den Haan & Garey Ramey & Joel Watson, 1997. "Job Destruction and Propagation of Shocks," University of California at San Diego, Economics Working Paper Series 97-23, Department of Economics, UC San Diego. [Downloadable!]
- Wouter Denhaan & Garey Ramey & Joel Watson, 1997. "FORTRAN code for Job Destruction and Propagation of Shocks," QM&RBC Codes 61, Quantitative Macroeconomics & Real Business Cycles. [Downloadable!]
Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November. [Downloadable!] (restricted)
Narayana R. Kocherlakota, 2000. "Creating business cycles through credit constraints," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-10. [Downloadable!]
Robert E. Hall, 2005. "Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years," NBER Working Papers 11678, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Jerome Fahrer & John Simon, 1994. "Capital Constraints and Employment," RBA Research Discussion Papers rdp9403, Reserve Bank of Australia. [Downloadable!]
Giovanni Dell'Ariccia & Pietro Garibaldi, 2005. "Gross Credit Flows," Review of Economic Studies, Blackwell Publishing, vol. 72(3), pages 665-685, 07. [Downloadable!] (restricted)
Other versions:
- Dell'Ariccia, Giovanni & Garibaldi, Pietro, 2000. "Gross Credit Flows," CEPR Discussion Papers 2569, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Robert Shimer, 2004. "The Consequences of Rigid Wages in Search Models," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 469-479, 04/05. [Downloadable!] (restricted)
Other versions:
- Robert Shimer, 2004. "The Consequences of Rigid Wages in Search Models," NBER Working Papers 10326, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November. [Downloadable!] (restricted)
Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March. [Downloadable!] (restricted)

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