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Disentangling Goods, Labor, and Credit Market Frictions in Three European Economies

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  • Thomas Brzustowski

    (London School of Economics and Political Science)

  • Nicolas Petrosky-Nadeau

    (Tepper School of Business)

  • Etienne Wasmer

    (Département d'économie)

Abstract

We build a flexible model with search frictions in three markets: credit, labor, and goods markets. We then apply this model (called CLG) to three different economies: a flexible, finance-driven economy (the UK), an economy with wage moderation (Germany), and an economy with structural rigidities (Spain). In these three countries, goods and credit market frictions play a dominant role in entry costs and account for 75% to 85% of the total entry costs. In the goods market, adverse supply shocks are amplified through their propagation to the demand side, as they also imply income losses for consumers. This adds up to, at most, an additional 15% to 25% to the impact of the shocks. Finally, the speed of matching in the goods market and the credit market accounts for a small fraction of unemployment: most variation in unemployment comes from the speed of matching in the labor market.

Suggested Citation

  • Thomas Brzustowski & Nicolas Petrosky-Nadeau & Etienne Wasmer, 2016. "Disentangling Goods, Labor, and Credit Market Frictions in Three European Economies," Sciences Po publications info:hdl:2441/7c8vm7kbos9, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/7c8vm7kbos9f08oo90oq51cqrp
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Search; Matching; Financial frictions; Goods frictions;
    All these keywords.

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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