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Stock Market Bubbles and UnemploymentJianjun MiaoBoston University - Department of Economics Pengfei WangHong Kong University of Science & Technology (HKUST) Lifang XuHong Kong University of Science & Technology (HKUST) - Department of Economics April 8, 2012 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.
Number of Pages in PDF File: 46 Keywords: stock market bubbles, unemployment, self-fulfilling beliefs, credit constraints, multiple equilibria, search and matching JEL Classification: E24, E44, J64 working papers seriesDate posted: April 10, 2012Suggested CitationContact Information
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