Credit Frictions and Labor Market Dynamics

Atanas Hristov

No 7.3, Working Paper / FINESS from DIW Berlin, German Institute for Economic Research

Abstract: We outline the case for credit frictions and a demand side aspect to labor market fluctuations. To illustrate the above proposition, we present a simple framework to analyze the joint dependence between a labor search problem in the labor market and a costly state verification problem in the credit market in the presence of price rigidities. Credit market imperfections amplify volatility of labor market variables to both supply and demand shocks, but to a much higher extent to demand shocks under rigid prices. The reason is that demand disturbances provide for a strong incentive to demand-constrained firms to adjust production and thereby labor factor.

Keywords: Credit and search frictions; unemployment; monetary policy (search for similar items in EconPapers)
JEL-codes: E51 G24 J64 (search for similar items in EconPapers)
Pages: 33 p.
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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