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The macroeconomics of credit and labor market imperfections

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  • Philippe Weil
  • Etienne Wasmer

Abstract

Credit market imperfections influence the labor market and aggregate economic activity. In turn, macroeconomic factors have an impact on the credit sector. To assess these effects in a tractable general-equilibrium framework, we introduce endogenous search frictions, in the spirit of Peter Diamond (1990), in both credit and labor markets. We demonstrate that credit frictions amplify macroeconomic volatility through a financial accelerator. The magnitude of this general-equilibrium accelerator is proportional to the credit gap, defined as the deviation of actual output from its perfect credit market level. We explore various extensions, notably endogenous wages.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/13436.

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Date of creation: 2004
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Publication status: Published in: The American Economic Review (2004) v.94 n° 4,p.944-963
Handle: RePEc:ulb:ulbeco:2013/13436

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  1. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  2. Bronars, Stephen G & Deere, Donald R, 1991. "The Threat of Unionization, the Use of Debt, and the Preservation of Shareholder Wealth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(1), pages 231-54, February.
  3. Perotti, E.C. & Spier, K.E., 1991. "Capital Structure As A Bargaining Tool: The Role Of Leverage In Contract Renegociation," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1548, Harvard - Institute of Economic Research.
  4. Wouter den Haan & Garey Ramey & Joel Watson, 1999. "Liquidity Flows and Fragility of Business Enterprises," NBER Working Papers 7057, National Bureau of Economic Research, Inc.
  5. Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 1999. "Capital Markets and the Instability of Open Economies," Working Papers 99.01, Swiss National Bank, Study Center Gerzensee.
  6. Diamond, Peter, 1990. "Pairwise Credit in Search Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 285-319, May.
  7. Asdrubali, Pierfederico & Sorensen, Bent E & Yosha, Oved, 1996. "Channels of Interstate Risk Sharing: United States 1963-1990," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(4), pages 1081-1110, November.
  8. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262161877, December.
  9. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(2), pages 269-300, November.
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Cited by:
  1. Nicolas Petrosky-Nadeau & Etienne Wasmer, 2014. "Macroeconomic Dynamics in a Model of Goods, Labor and Credit Market Frictions," Sciences Po Economics Discussion Papers 2014-09, Sciences Po Departement of Economics.
  2. Etienne Wasmer, 2011. "A steady-state model of a non-walrasian economy with three imperfect markets," Sciences Po publications info:hdl:2441/5l6uh8ogmqi, Sciences Po.
  3. Nicolas Petrovsky-Nadeau & Etienne Wasmer, 2010. "The Cyclical Volatility of Labor Markets under Frictional Financial Markets," Sciences Po publications info:hdl:2441/5l6uh8ogmqi, Sciences Po.
  4. Karlan, Dean S. & Zinman, Jonathan, 2007. "Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6182, C.E.P.R. Discussion Papers.
  5. Lehmann, Etienne & Van Der Linden, Bruno, 2010. "Search Frictions On Product And Labor Markets: Money In The Matching Function," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 14(01), pages 56-92, February.
  6. Zhang, Qinghua, 2007. "A micro-foundation of local business cycles," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 37(5), pages 568-601, September.
  7. Sergio Destefanis & Giuseppe Mastromatteo, 2010. "Labour-market performance in the OECD: some recent cross-country evidence," International Journal of Manpower, Emerald Group Publishing, Emerald Group Publishing, vol. 31(7), pages 713-731, November.

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