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Credit constraints and the persistence of unemployment

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

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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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

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  1. Belot, M.V.K. & van Ours, J.C., 2000. "Does the Recent Success of some OECD Countries in Lowering their Unemployment Rates lie in the Clever Design of their Labour Market Reforms?," Discussion Paper 2000-40, Tilburg University, Center for Economic Research.
  2. Francisco J. Buera & Yongseok Shin, 2013. "Financial Frictions and the Persistence of History: A Quantitative Exploration," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 221-272.
  3. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  4. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
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  13. John Moore & Nobuhiro Kiyotaki, "undated". "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  14. Daron Acemoglu, 2000. "Credit Market Imperfections and Persistent Unemployment," NBER Working Papers 7938, National Bureau of Economic Research, Inc.
  15. Nicolas Petrosky-Nadeau, 2008. "Credit, Vacancies and Unemployment Fluctuations," 2008 Meeting Papers 640, Society for Economic Dynamics.
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  17. Wasmer, Etienne & Weil, Philippe, 2002. "The Macroeconomics of Labour and Credit Market Imperfections," CEPR Discussion Papers 3334, C.E.P.R. Discussion Papers.
  18. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
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  30. Donatella Gatti & Anne-Gaël Vaubourg, 2009. "Unemployment and finance: how do financial and labour market factors interact?," Working Papers halshs-00566792, HAL.
  31. repec:hal:psewpa:halshs-00566792 is not listed on IDEAS
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