American Economic Review: Vol. 94 No. 4 (September 2004)
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The Macroeconomics of Labor and Credit Market Imperfections
Wasmer, Etienne, and Philippe Weil. 2004. "The Macroeconomics of Labor and Credit Market Imperfections." American Economic Review, 94(4): 944-963.
Credit market imperfections influence the labor market and aggregate economic activity. In turn, macroeconomic factors have an impact on the credit sector. To assess these effects in a tractable general-equilibrium framework, we introduce endogenous search frictions, in the spirit of Peter Diamond (1990), in both credit and labor markets. We demonstrate that credit frictions amplify macroeconomic volatility through a financial accelerator. The magnitude of this general-equilibrium accelerator is proportional to the credit gap, defined as the deviation of actual output from its perfect credit market level. We explore various extensions, notably endogenous wages.
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