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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

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Related research

Keywords: Credit markets; labor markets; unemployment; credit constraints; search frictions.;

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Find related papers by JEL classification:

• E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
• E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
• J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
• J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

This paper has been announced in the following NEP Reports:

• NEP-ALL-2009-06-03 (All new papers)
• NEP-DGE-2009-06-03 (Dynamic General Equilibrium)
• NEP-LAB-2009-06-03 (Labour Economics)

References

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Citations

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. 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.
2. Javier Andrés & José Emilio Boscá & Javier Ferri, 2011. "Household Debt and Labor Market Fluctuations," Working Papers 1102, International Economics Institute, University of Valencia.
   
   • Javier Andrés & José E. Boscá & Javier Ferri, 2011. "Household debt and labour market fluctuations," Banco de España Working Papers 1129, Banco de España.
3. 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.
4. Sachs, Andreas, 2011. "Institutions and unemployment: Do interactions matter?," ZEW Discussion Papers 11-057, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
5. 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.

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