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Credit Constraints and the Persistence of Unemployment

  • Nicolas Dromel

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

  • Elie Kolakez

    ()

    (ERMES - TEPP - UP2 - Université Panthéon-Assas - M.E.N.E.S.R. - Ministère de l'Éducation nationale, de l’Enseignement supérieur et de la Recherche)

  • Etienne Lehmann

    ()

    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, IZA - Institute for the Study of Labor)

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

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00389762.

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Date of creation: May 2009
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Publication status: Published in Documents de travail du Centre d'Economie de la Sorbonne 2009.32 - ISSN : 1955-611X. 2009
Handle: RePEc:hal:cesptp:halshs-00389762
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00389762
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