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Credit Constraints and the Persistence of Unemployment

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  • Nicolas Dromel

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Elie Kolakez

    ()
    (ERMES - TEPP - Université Paris II - Panthéon-Assas)

  • Etienne Lehmann

    ()
    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, IZA - Institute for the Study of Labor)

Abstract

In this paper, we argue that credit market imperfections impact not only the level of unemployment, but also its persistence. For this purpose, we first develop a theoretical model based on the equilibrium matching framework of Mortensen and Pissarides (1999) and Pissarides (2000) where we introduce credit constraints. We show these credit constraints not only increase steady-state unemployment, but also slow down the transitional dynamics. We then provide an empirical illustration based on a country panel dataset of 19 OECD countries. Our results suggest that credit market imperfections would significantly increase the persistence of unemployment.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00389762.

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Date of creation: May 2009
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Handle: RePEc:hal:cesptp:halshs-00389762

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00389762
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Keywords: Credit markets; labor markets; unemployment; credit constraints; search frictions.;

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References

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  8. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Credit Constraints and the Persistence of Unemployment
    by Christian Zimmermann in NEP-DGE blog on 2009-11-17 02:30:42
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Cited by:
  1. Andrés, Javier & Boscá, José E. & Ferri, Javier, 2013. "Household debt and labor market fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 37(9), pages 1771-1795.
  2. Sachs, Andreas, 2011. "Institutions and unemployment: Do interactions matter?," ZEW Discussion Papers 11-057, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Andreas Sachs, 2012. "What really drives unemployment? A bayesian approach to determine the impact of institutions on the unemployment rate," Economics Bulletin, AccessEcon, vol. 32(1), pages 1008-1019.
  4. Carter, Justin & Moore, Winston & Jackman, Mahalia, 2012. "Is the Magnitude of Household Debt in Barbados a Concern?," MPRA Paper 47791, University Library of Munich, Germany.
  5. Sachs, Andreas, 2010. "A Bayesian approach to determine the impact of institutions on the unemployment rate," ZEW Discussion Papers 10-058, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. 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.

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