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Credit Constraints and the Persistence of Unemployment

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Author Info

  • Dromel, Nicolas

    ()
    (University of Paris 1 Panthéon-Sorbonne)

  • Kolakez, Elie

    ()
    (University of Paris 2 - ERMES)

  • Lehmann, Etienne

    ()
    (CRED, Université Panthéon Assas Paris 2)

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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Bibliographic Info

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:
Publication status: published in: Labour Economics, 2010, 17 (5), 823-834
Handle: RePEc:iza:izadps:dp4501

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Related research

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

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References

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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. Javier Andrés & José E. Boscá & Javier Ferri, 2011. "Household debt and labour market fluctuations," Banco de Espa�a Working Papers, Banco de Espa�a 1129, Banco de Espa�a.
  2. 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.
  3. Sachs, Andreas, 2010. "A Bayesian approach to determine the impact of institutions on the unemployment rate," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 10-058, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Sachs, Andreas, 2011. "Institutions and unemployment: Do interactions matter?," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 11-057, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. 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, Department of Economics, University of Konstanz 2011-38, Department of Economics, University of Konstanz.
  6. 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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