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Credit, Vacancies and Unemployment Fluctuations

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  • Nicolas Petrosky-Nadeau

    (UQAM)

Abstract

This paper investigates the implications of agency problems on credit markets when vacancy costs require some external financing for the propagation properties of an otherwise standard labor search model. The countercyclical premium on external finance greatly increases the elasticity of vacancies to exogenous innovations such that the model can match the volatility of aggregate unemployment, vacancies and labor market tension. The model is extended to allow for endogenous job separation as there is evidence that contractions are more pronounced at financially constrained firms. This improves the ability of the model to match key labor market statistics while preserving a Bevridge curve between unemployment and vacancies, and magnifies the financial accelerator.

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  • Nicolas Petrosky-Nadeau, 2008. "Credit, Vacancies and Unemployment Fluctuations," 2008 Meeting Papers 640, Society for Economic Dynamics.
    • Handle: RePEc:red:sed008:640
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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