Working Paper: CEPR ID: DP3334
Authors: Etienne Wasmer; Philippe Weil
Abstract: Labour market frictions are not the only possible source of high unemployment. Credit market imperfections, driven by microeconomic frictions and influenced by macroeconomic factors, could also be to blame. To develop this idea in a simple and tractable macroeconomic model, we treat credit and labour market imperfections in a symmetrical way. Accordingly, we introduce specificity in credit relationships, and assume that credit to potential entrepreneurs is rationed due to endogenous search frictions, in the spirit of Diamond (1990). These imperfections mirror job search frictions in the labour market. We study the determination of equilibrium unemployment in the presence of credit market frictions both with exogenous and endogenous wages. We explore a number of possible extensions or extensions: endogenous destruction, monetary policy and the short-run effects of financial liberalization.
Keywords: Capitalism; Credit and Search Frictions; Monetary Policy; Unemployment
JEL Codes: E51; G24; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| credit market imperfections (E44) | unemployment (J64) |
| labor market frictions (J29) | unemployment (J64) |
| banking deregulation (G28) | unemployment (J64) |
| tighter credit markets (E44) | unemployment (J64) |
| banking deregulation (G28) | unemployment (J64) |