High Discounts and High Unemployment

Robert Hall ()

American Economic Review, 2017, vol. 107, issue 2, 305-30

Abstract: Unemployment is high when financial discounts are high. In recessions, the stock market falls and all types of investment fall, including employers' investment in job creation. The discount rate implicit in the stock market rises, and discounts for other claims on business income also rise. A higher discount implies a lower present value of the benefit of a new hire to an employer. According to the leading view of unemployment--the Diamond-Mortensen-Pissarides model--when the incentive for job creation falls, the labor market slackens and unemployment rises. Thus high discount rates imply high unemployment.

JEL-codes: E24 E32 E44 J23 J31 J63 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.20141297
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (116)

Downloads: (external link)
https://www.aeaweb.org/articles?id=10.1257/aer.20141297 (application/pdf)
https://www.aeaweb.org/articles/attachments?retrie ... fXrUuUaBXEZM4PUKZhwz (application/zip)
https://www.aeaweb.org/articles/attachments?retrie ... mK4htVTpTSzbyzEibXfX (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: High Discounts and High Unemployment (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:107:y:2017:i:2:p:305-30

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().