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The Cyclical Volatility of Labor Markets under Frictional Financial Markets

  • Nicolas Petrovsky-Nadeau

    (Tepper School of Business)

  • Etienne Wasmer

    (Département d'économie)

In an economy with search on credit and labor markets, a financial multiplier raises the elasticity of labor market tightness to productivity shocks. This multiplier increases with total financial costs, which are minimized under a credit market Hosios-Pissarides rule. Relaxing that condition leads to either a small "bank " or a small "firm" surplus in the credit market, and larger multipliers which can match or even overshoot the elasticity of market tightness in the data. Furthermore, when wages are endogenous, it is possible to relax Hagedorn and Manovskii’s (2008) small labor surplus assumption in order to match the data.

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Date of creation: 02 Apr 2010
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Handle: RePEc:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h48226q18
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  1. Dale T. Mortensen & Eva Nagypal, 2005. "More on Unemployment and Vacancy Fluctuations," NBER Working Papers 11692, National Bureau of Economic Research, Inc.
  2. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
  3. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
  4. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University.
  5. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage Bargaining with On-the-Job Search: Theory and Evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00176090, HAL.
  6. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1994. "The Financial Accelerator and the Flight to Quality," Working Papers 94-24, C.V. Starr Center for Applied Economics, New York University.
  7. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  8. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-59, November.
  9. Nicolas Petrosky-Nadeau, 2014. "Credit, Vacancies and Unemployment Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 191-205, April.
  10. Marcus Hagedorn & Iourii Manovskii, 2007. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," IEW - Working Papers 351, Institute for Empirical Research in Economics - University of Zurich.
  11. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  12. Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 397-415.
  13. Etienne Wasmer & Philippe Weil, 2004. "The Macroeconomics of Credit and Labor Markets Imperfections," Post-Print hal-01020132, HAL.
  14. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
  15. Delacroix, Alain, 2006. "A multisectorial matching model of unions," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 573-596, April.
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