Capital Market Frictions and the Business Cycle
AbstractWe 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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Bibliographic InfoPaper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2006053.
Date of creation: 01 Nov 2006
Date of revision:
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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