Financial Markets and Unemployment
Tommaso Monacelli (),
Vincenzo Quadrini () and
Antonella Trigari ()
No 17389, NBER Working Papers from National Bureau of Economic Research, Inc
We study the importance of financial markets for (un)employment fluctuations in a model with searching and matching frictions where firms issue debt under limited enforcement. Higher debt allows employers to bargain lower wages which in turn increases the incentive to create jobs. The transmission mechanism of 'credit shocks' is fundamentally different from the typical credit channel and the model can explain why firms cut hiring after a credit contraction even if they have not shortage of funds for hiring workers. The theoretical predictions are consistent with the estimation of a structural VAR whose identifying restrictions are derived from the theoretical model.
JEL-codes: E24 E32 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab and nep-mac
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Published as Tommaso Monacelli & Vincenzo Quadrini & Antonella Trigari, 2023. "Financial markets and unemployment," Journal of Financial Economics, .
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