The Macroeconomics of Labour and Credit Market Imperfections

Wasmer, Etienne; Weil, Philippe

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The Macroeconomics of Labour and Credit Market Imperfections

40 Pages Posted: 23 May 2002

See all articles by Etienne Wasmer

Etienne Wasmer

New York University (NYU) - New York University, Abu Dhabi; Centre for Economic Policy Research (CEPR)

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: Suggested Citation

Wasmer, Etienne and Weil, Philippe, The Macroeconomics of Labour and Credit Market Imperfections (April 2002). Available at SSRN: https://ssrn.com/abstract=313665