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Stock Market Bubbles and Unemployment

Pengfei Wang (), Lifang Xu and Jianjun Miao ()
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Lifang Xu: The Hong Kong University of Science and Technology

No 720, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper introduces endogenous credit constraints in a search model of unemployment. These constraints generate multiple equilibria supported by self-fulfilling beliefs. A stock market bubble exists through a positive feedback loop mechanism. The collapse of the bubble tightens the credit constraints, causing firms to reduce investment and hirings. Unemployed workers are hard to find jobs generating high and persistent unemployment.

Date: 2013
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Journal Article: Stock market bubbles and unemployment (2016) Downloads
Working Paper: Stock Market Bubbles and Unemployment (2012) Downloads
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