Equilibrium Unemployment during Financial Crises
AbstractFinancial crises in both emerging and developed economies have been characterized by large output drops and spikes in unemployment and interest rates. To account for these stylized facts this paper builds a business cycle model where financial and labor market frictions interact as occasionally binding borrowing constraints and search frictions. The model is calibrated to a Sudden Stop-prone emerging economy and also to some peripheral European economies in the recent crisis. The model accounts for unemployment dynamics both during crises and at regular business cycle frequencies. The paper also assesses the welfare implications of policies that reduce real minimum wages during crises.
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Bibliographic InfoPaper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number IDB-WP-390.
Date of creation: Feb 2013
Date of revision:
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
- NEP-DGE-2013-03-23 (Dynamic General Equilibrium)
- NEP-MAC-2013-03-23 (Macroeconomics)
- NEP-OPM-2013-03-23 (Open Economy Macroeconomics)
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