The Macroeconomics of Labor and Credit Market Imperfections

Etienne Wasmer and Philippe Weil

No 179, IZA Discussion Papers from Institute of Labor Economics (IZA)

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, à la Mortensen- Pissarides (1994), in the labor market.

Keywords: unemployment; Credit and search frictions; monetary policy (search for similar items in EconPapers)
JEL-codes: E51 G24 J64 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2000-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Published - published in: American Economic Review, 2004, 94 (4), 944-963

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Related works:
Journal Article: The Macroeconomics of Labor and Credit Market Imperfections (2004)
Working Paper: The Macroeconomics of Labour and Credit Market Imperfections (2002)
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