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Stock Market Bubbles and Unemployment

Listed author(s):
  • Pengfei Wang

    (Hong Kong University of Science and Tech)

  • Lifang Xu

    (The Hong Kong University of Science and Technology)

  • Jianjun Miao

    (Boston University)

This paper introduces endogenous credit constraints in a search model of unemployment. These constraints generate multiple equilibria supported by self-fulfilling beliefs. A stock market bubble exists through a positive feedback loop mechanism. The collapse of the bubble tightens the credit constraints, causing firms to reduce investment and hirings. Unemployed workers are hard to find jobs generating high and persistent unemployment.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 720.

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Date of creation: 2013
Handle: RePEc:red:sed013:720
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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