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Stock Market Bubbles and Unemployment

Jianjun Miao (), Pengfei Wang () and Lifang Xu ()
Additional contact information
Lifang Xu: Department of Economics, Hong Kong University of Science and Technology, ClearWater Bay, Hong Kong.

No WP2012-011, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: This paper introduces endogenous credit constraints in a search model of unemployment. These constraints generate multiple equilibria supported by self-fulfilling beliefs. A stock market bubble exists 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.

Keywords: stock market bubbles; unemployment; self-fulfilling beliefs; credit constraints; multiple equilibria (search for similar items in EconPapers)
JEL-codes: E24 E44 J64 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2012-01
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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Related works:
Journal Article: Stock market bubbles and unemployment (2016) Downloads
Working Paper: Stock Market Bubbles and Unemployment (2013)
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