The Cyclical Volatility of Labor Markets under Frictional Financial Markets

Nicolas Petrosky-Nadeau and Etienne Wasmer

American Economic Journal: Macroeconomics, 2013, vol. 5, issue 1, 193-221

Abstract: We provide a dynamic extension of an economy with search on credit and labor markets (Wasmer and Weil 2004). Financial frictions create volatility. They add an additional, almost acyclical, entry cost to procyclical job creation costs, thus increasing the elasticity of labor market tightness to productivity shocks by a factor of five to eight, compared to a matching economy with perfect financial markets. We characterize a dynamic financial multiplier that is increasing in total financial costs and minimized under a credit market Hosios- Pissarides rule. Financial frictions are an element of the solution to the volatility puzzle. (JEL C78, E24, E32, E44, G21, J63)

JEL-codes: C78 E24 E32 E44 G21 J63 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/mac.5.1.193
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Citations: View citations in EconPapers (122)

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Related works:
Working Paper: The Cyclical Volatility of Labor Markets under Frictional Financial Markets (2010)
Working Paper: The Cyclical Volatility of Labor Markets under Frictional Financial Markets (2010)
Working Paper: The Cyclical Volatility of Labor Markets under Frictional Financial Markets (2010)
Working Paper: The cyclical volatility of labor markets under frictional financial markets
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