Credit Frictions and Labor Market Dynamics
AbstractWe outline the case for credit frictions and a demand side aspect to labor market fluctuations. To illustrate the above proposition, we present a simple framework to analyze the joint dependence between a labor search problem in the labor market and a costly state verification problem in the credit market in the presence of price rigidities. Credit market imperfections amplify volatility of labor market variables to both supply and demand shocks, but to a much higher extent to demand shocks under rigid prices. The reason is that demand disturbances provide for a strong incentive to demand-constrained firms to adjust production and thereby labor factor.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Working Paper / FINESS with number 7.3.
Length: 33 p.
Date of creation: 2009
Date of revision:
Credit and search frictions; unemployment; monetary policy;
Find related papers by JEL classification:
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-11 (All new papers)
- NEP-DGE-2009-09-11 (Dynamic General Equilibrium)
- NEP-LAB-2009-09-11 (Labour Economics)
- NEP-MAC-2009-09-11 (Macroeconomics)
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- 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).
- Dromel, Nicolas L. & Kolakez, Elie & Lehmann, Etienne, 2010. "Credit constraints and the persistence of unemployment," Labour Economics, Elsevier, vol. 17(5), pages 823-834, October.
- Nicolas Dromel & Elie Kolakez & Etienne Lehmann, 2009. "Credit Constraints and the Persistence of Unemployment," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00389762, HAL.
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