The Macroeconomics of Labour and Credit Market Imperfections

Philippe Weil and Etienne Wasmer

No 3334, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Labour market frictions are not the only possible source of high unemployment. Credit market imperfections, driven by microeconomic frictions and influenced by macroeconomic factors, could also be to blame. To develop this idea in a simple and tractable macroeconomic model, we treat credit and labour market imperfections in a symmetrical way. Accordingly, we introduce specificity in credit relationships, and assume that credit to potential entrepreneurs is rationed due to endogenous search frictions, in the spirit of Diamond (1990). These imperfections mirror job search frictions in the labour market. We study the determination of equilibrium unemployment in the presence of credit market frictions both with exogenous and endogenous wages. We explore a number of possible extensions or extensions: endogenous destruction, monetary policy and the short-run effects of financial liberalization.

Keywords: Credit and search frictions; Unemployment; Monetary policy; Capitalism (search for similar items in EconPapers)
JEL-codes: E51 G24 J64 (search for similar items in EconPapers)
Date: 2002-04
New Economics Papers: this item is included in nep-mac and nep-mfd
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: The Macroeconomics of Labor and Credit Market Imperfections (2004)
Working Paper: The Macroeconomics of Labor and Credit Market Imperfections (2000)
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