The Cyclical Volatility of Labor Markets under Frictional Financial Markets

Nicolas Petrovsky-Nadeau and Etienne Wasmer
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Nicolas Petrovsky-Nadeau: Tepper School of Business - CMU - Carnegie Mellon University [Pittsburgh]

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Abstract: In an economy with search on credit and labor markets, a financial multiplier raises the elasticity of labor market tightness to productivity shocks. This multiplier increases with total financial costs, which are minimized under a credit market Hosios-Pissarides rule. Relaxing that condition leads to either a small "bank " or a small "firm" surplus in the credit market, and larger multipliers which can match or even overshoot the elasticity of market tightness in the data. Furthermore, when wages are endogenous, it is possible to relax Hagedorn and Manovskii's (2008) small labor surplus assumption in order to match the data.

Date: 2010-04-02
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Related works:
Journal Article: The Cyclical Volatility of Labor Markets under Frictional Financial Markets (2013)
Working Paper: The Cyclical Volatility of Labor Markets under Frictional Financial Markets (2010)
Working Paper: The Cyclical Volatility of Labor Markets under Frictional Financial Markets (2010)
Working Paper: The cyclical volatility of labor markets under frictional financial markets
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