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Credit constraints and the persistence of unemployment

Author Info

Listed author(s):
  • Dromel, Nicolas L.
  • Kolakez, Elie
  • Lehmann, Etienne

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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File URL: http://www.sciencedirect.com/science/article/pii/S0927-5371(10)00037-0
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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 17 (2010)
Issue (Month): 5 (October)
Pages: 823-834

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Handle: RePEc:eee:labeco:v:17:y:2010:i:5:p:823-834
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

Keywords: Credit markets Labour markets Unemployment Credit constraints Search frictions;

Other versions of this item:

Find related papers by JEL classification:
  • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • 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, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

References listed on IDEAS
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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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