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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
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Related works:
Working Paper: Stock Market Bubbles and Unemployment (2013)
Working Paper: Stock Market Bubbles and Unemployment (2012) Downloads
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DOI: 10.1007/s00199-015-0906-7

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