Stock Market Bubbles and Unemployment
46 Pages Posted: 10 Apr 2012
Date Written: 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.
Keywords: stock market bubbles, unemployment, self-fulfilling beliefs, credit constraints, multiple equilibria, search and matching
JEL Classification: E24, E44, J64
Suggested Citation: Suggested Citation
Miao, Jianjun and Wang, Pengfei and Xu, Lifang, Stock Market Bubbles and Unemployment (April 8, 2012). Available at SSRN: https://ssrn.com/abstract=2036594 or http://dx.doi.org/10.2139/ssrn.2036594
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