 Welfare Cost of Fluctuations when Labor Market Search Interacts with Financial FrictionsThepthida Sopraseuth, Francois Langot and Eleni Iliopulos No 890, 2016 Meeting Papers from Society for Economic Dynamics Abstract: We show that the interaction between labor search and financial frictions can account for the high responsiveness of the job finding rate to the business cycle through counter-cyclical opportunity costs of opening a vacancy and endogenous wage sluggishness. We then provide an assessment of the welfare costs associated to the implied large fluctuations. The matching process in the labor market leads positive shocks to reduce unemployment less than negative shocks increase it. The magnitude of this non-linearity is magnified by financial frictions and lead to sizable welfare costs, beyond the size of the fluctuations. By amplifying this asymmetric effect of the business cycle, financial frictions shift the distribution of welfare costs to regions characterized by more asymmetry and greater losses. Date: 2016 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:890 Access Statistics for this paper More papers in 2016 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC. |
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