Credit constraints and the persistence of unemployment |
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| Authors: | Nicolas L Dromel Elie Kolakez Etienne Lehmann |
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| Institution: | 1. CNRS, Centre d''Economie de la Sorbonne and Paris School of Economics, France;2. ERMES-TEPP, University of Paris 2, France;3. CREST (INSEE), France;1. Tongji University, China;2. Vrije Universiteit Amsterdam and Tinbergen Institute, Netherlands;3. University of Toronto, Canada;1. Department of Statistics and Operations Research II, Universidad Complutense de Madrid, Spain;2. Mathematics Department, CINVESTAV-IPN, Mexico;3. Department of Statistics and Operations Research, UNED, Madrid, Spain;1. THEMA, Université de Cergy-Pontoise, 33 boulevard du Port, 95011 Cergy-Pontoise Cedex, France;2. CRED (TEPP) Université Panthéon Assas Paris 2, France;3. CREST-INSEE, Timbre J360, 15 boulevard Gabriel Péri, 92245, Malakoff Cedex, France;4. IRES, Université Catholique de Louvain, Place Montesquieu 3, B1348, Louvain-la-Neuve, Belgium;5. FNRS, Belgium |
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| Abstract: | In this paper, we argue that credit market imperfections impact not only the level of unemployment, but also its persistence. For this purpose, we first develop a theoretical model based on the equilibrium matching framework of Mortensen and Pissarides (1999) and Pissarides (2000) where we introduce credit constraints. We show these credit constraints not only increase steady-state unemployment, but also slow down the transitional dynamics. We then provide an empirical illustration based on a country panel dataset of 20 OECD countries. Our results suggest that credit market imperfections significantly increase the persistence of unemployment. |
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