The Macroeconomics of Labor and Credit Market Imperfections

By Étienne Wasmer, Philippe Weil. Social Science Research Network, 2000

457 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/408ec5164d253568e618717745d4123ada13dd7c

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Citations in the corpus

Finance and Employment (2012, unknown): “13 A similar result arises in the search-theoretic general equilibrium model by Wasmer and Weil (2004), who show that credit frictions amplify the volatility of employment through a financial accelerator mechanism. financial development on employment reallocation is not necessarily increasing,…”
The Effect of Employment Protection Legislation and Financial Market Imperfections on Investment: Evidence from a Firm-Level Panel of EU Countries (2009, unknown): “The impact of credit and labour market imperfections on investment has been theoretically analyzed in Rendón (2004) and in Wasmer and Weil (2004), who showed that job creation is limited by financing constraints even in the presence of a flexible labour market.”
The Fundamental Surplus (2017, background): “In their main setup, Wasmer and Weil (2004) assume a sticky wage ŵ in the labor market.”
The Cyclical Volatility of Labor Markets Under Frictional Financial Markets (2010, unknown): “On the other hand, Wasmer and Weil (2004), who develop ﬁnancial imperfections in a Mortensen-Pissarides economy with two matching functions (one in the labor market, one in the credit market), show that the steady-state volatility of labor market tightness to proﬁt shocks is augmented by a factor…”
Market Freedom and the Global Recession (2011, unknown): “…Rep -0.81 1.121 70.240 8.857 6.068 5.721 25 Denmark -1.82 1.744 94.320 9.391 7.707 8.229 26 Dominican Rep 2.88 -0.168 39.210 7.833 5.853 5.428 27 Ecuador 2.76 -0.596 33.630 7.902 3.816 5.090 28 Egypt 5.94 -0.452 50.260 6.100 3.673 5.032 29 El Salvador 0.02 0.044 46.540 9.644 5.427 6.619 30 Eq.”
Financial (In)Stability, Supervision and Liquidity Injections: A Dynamic General Equilibrium Approach (2008, unknown): “See for instance Bernanke et al. (1999) with asymmetry of information and agency costs or Wasmer and Weil (2004) with sequential search and matching processes.”