Stock market bubbles and unemployment

Jianjun Miao, Pengfei Wang and Lifang Xu ()

Economic Theory, 2016, vol. 61, issue 2, 273-307

Abstract: This paper incorporates endogenous credit constraints in a search model of unemployment. These constraints generate multiple equilibria supported by self-fulfilling beliefs. A stock market bubble emerges through a positive feedback loop mechanism. The collapse of the bubble tightens the credit constraints, causing firms to reduce investment and hirings. Unemployed workers are hard to find jobs generating high and persistent unemployment. A recession is caused by shifts in beliefs, even though there is no exogenous shock to the fundamentals. Copyright Springer-Verlag Berlin Heidelberg 2016

Keywords: Search; Unemployment; Stock market bubbles; Self-fulfilling beliefs; Credit constraints; Multiple equilibria; E24; E44; G10 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00199-015-0906-7 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Stock Market Bubbles and Unemployment (2013)
Working Paper: Stock Market Bubbles and Unemployment (2012)
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:spr:joecth:v:61:y:2016:i:2:p:273-307

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

DOI: 10.1007/s00199-015-0906-7

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().