Credit Constraints and the Persistence of Unemployment

Nicolas L. DROMEL (), Elie Kolakez () and Etienne Lehmann ()
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Elie Kolakez: University of Paris 2 - ERMES

No 4501, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: In this paper, we argue that credit market imperfections impact not only the level of unemployment, but also its persistence. For this purpose, we first develop a theoretical model based on the equilibrium matching framework of Mortensen and Pissarides (1999) and Pissarides (2000) where we introduce credit constraints. We show these credit constraints not only increase steady-state unemployment, but also slow down the transitional dynamics. We then provide an empirical illustration based on a country panel dataset of 20 OECD countries. Our results suggest that credit market imperfections significantly increase the persistence of unemployment.

Keywords: credit markets; labor markets; unemployment; credit constraints; search frictions (search for similar items in EconPapers)
JEL-codes: E24 E44 J08 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-lab
Date: 2009-10
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Working Paper: Credit Constraints and the Persistence of Unemployment (2009)
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