Credit, Vacancies and Unemployment Fluctuations
30 Pages Posted: 19 Nov 2009 Last revised: 19 Sep 2013
Date Written: September 18, 2013
Propagation in equilibrium models of search unemployment is altered when vacancy costs require some external financing on frictional credit markets. The easing of financing constraints during an expansion as firms accumulate net worth reduces the opportunity cost for resources allocated to job creation. The dynamics of market tightness are affected by (i) a cost channel, increasing the incentive to recruit for a given benefit from a new hire, and (ii) a wage channel, whereby firms' improved bargaining position limits the upward pressure of market tightness on wages. Agency related credit frictions endogenously generate persistence in the dynamics of labor-market tightness, and have a moderate endogenous effect on amplification.
Keywords: vacancies and unemployment dynamics, search and matching, credit market frictions
JEL Classification: E32, E44, J63, J64
Suggested Citation: Suggested Citation