Credit Constraints and the Persistence of Unemployment

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Credit Constraints and the Persistence of Unemployment

Author Info

Dromel, Nicolas () (University of Paris 1)
Kolakez, Elie () (University of Paris 2 - ERMES)
Lehmann, Etienne () (CREST-INSEE)

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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 20 OECD countries. Our results suggest that credit market imperfections significantly increase the persistence of unemployment.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4501.

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Length: 24 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4501

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Paper
- Nicolas L. 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_v1, HAL. [Downloadable!]

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-2009-11-14 (All new papers)
NEP-DGE-2009-11-14 (Dynamic General Equilibrium)
NEP-LAB-2009-11-14 (Labour Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Other versions:
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Other versions:
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