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Disentangling goods, labor, and credit market frictions in three European economies

Thomas Brzustowski, Nicolas Petrosky-Nadeau and Etienne Wasmer ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We build a flexible model with search frictions in three markets: credit, labor, and goods markets. We then apply this model (called CLG) to three different economies: a flexible, finance-driven economy (the UK), an economy with wage moderation (Germany), and an economy with structural rigidities (Spain). In these three countries, goods and credit market frictions play a dominant role in entry costs and account for 75% to 85% of the total entry costs. In the goods market, adverse supply shocks are amplified through their propagation to the demand side, as they also imply income losses for consumers. This adds up to, at most, an additional 15% to 25% to the impact of the shocks. Finally, the speed of matching in the goods market and the credit market accounts for a small fraction of unemployment: most variation in unemployment comes from the speed of matching in the labor market.

Keywords: search; matching; financial frictions; good frictions (search for similar items in EconPapers)
JEL-codes: R14 J01 F3 G3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-eec
Date: 2018-03-01
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Published in Labour Economics, 1, March, 2018, 50, pp. 180-196. ISSN: 0927-5371

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Related works:
Journal Article: Disentangling goods, labor, and credit market frictions in three European economies (2018) Downloads
Working Paper: Disentangling Goods, Labor, and Credit Market Frictions in Three European Economies (2016) Downloads
Working Paper: Disentangling goods, labor, and credit market frictions in three European economies (2015) Downloads
Working Paper: Disentangling goods, labor and credit market frictions in three European economies (2015) Downloads
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