The Macroeconomics of Labour and Credit Market Imperfections

40 Pages Posted: 23 May 2002

See all articles by Etienne Wasmer

Etienne Wasmer

Observatoire Français des Conjonctures Economiques (OFCE); Sciences Po; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Philippe Weil

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: April 2002

Abstract

Labour market frictions are not the only possible source of high unemployment. Credit market imperfections, driven by microeconomic frictions and influenced by macroeconomic factors, could also be to blame. To develop this idea in a simple and tractable macroeconomic model, we treat credit and labour market imperfections in a symmetrical way. Accordingly, we introduce specificity in credit relationships, and assume that credit to potential entrepreneurs is rationed due to endogenous search frictions, in the spirit of Diamond (1990). These imperfections mirror job search frictions in the labour market. We study the determination of equilibrium unemployment in the presence of credit market frictions both with exogenous and endogenous wages. We explore a number of possible extensions or extensions: endogenous destruction, monetary policy and the short-run effects of financial liberalization.

Keywords: Credit and search frictions, unemployment, monetary policy, capitalism

JEL Classification: E51, G24, J64

Suggested Citation

Wasmer, Etienne and Weil, Philippe, The Macroeconomics of Labour and Credit Market Imperfections (April 2002). CEPR Discussion Paper No. 3334. Available at SSRN: https://ssrn.com/abstract=313665

Etienne Wasmer (Contact Author)

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

69 Quai d'Orsay
Paris 75004
France

Sciences Po

56 rue Jacob
Paris Cedex 07, 75337
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Philippe Weil

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
+32 2 650 4220 (Phone)
+32 2 650 4475 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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