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Title:The Macroeconomics of Labor and Credit Market Imperfections PDF Logo
Authors:Wasmer, Etienne
Weil, Philippe
Issue Date:2000
Series/Report no.:IZA Discussion paper series 179
Abstract:Labor market frictions are not the only possible factor responsible for high unemployment. Credit market imperfections, driven by microeconomic frictions and impacted upon by macroeconomic factors such as monetary policy, could also be to blame. This paper shows that labor and credit market imperfections interact in a complementary way - which may explain why European and US unemployment differ so much when labor markets have become more similar at the margin in Europe and the US. To develop this idea, we build a search model that treats credit and labor market imperfections in a symmetrical way. 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 the job search frictions that we introduce, – la Mortensen- Pissarides (1994), in the labor market.
Subjects:Credit and search frictions
unemployment
monetary policy
JEL:E51
J64
G24
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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