The Macroeconomics of Labor, Credit and Financial Market Imperfections

Miroslav Gabrovski, Ioannis Kospentaris and Lucie Lebeau

No 2409, Working Papers from Federal Reserve Bank of Dallas

Abstract: An increasing share of corporate loans, a critical source of firm credit, are sold off banks’ balance sheets and actively traded in a secondary over-the-counter market. We develop a microfounded equilibrium search-theoretic model with labor, credit and financial markets to explore how this secondary loan market affects the real economy, highlighting a trade-off: while the market reduces the steady-state level of unemployment by 0.6pp, it amplifies its response to a 1% productivity drop from 3.6% to 4.3%. Secondary market frictions matter significantly: eliminating them would not only reduce unemployment by 1.2pp, but also dampen its volatility down to 2.7%.

Keywords: search frictions; labor market; credit markets; financial linkages; secondary loan markets; over-the-counter markets (search for similar items in EconPapers)
JEL-codes: E24 E44 E51 G11 G12 G21 J64 (search for similar items in EconPapers)
Pages: 67
Date: 2024-10-22
New Economics Papers: this item is included in nep-ban, nep-dge, nep-fdg and nep-lab
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DOI: 10.24149/wp2409

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