TY - JOUR
T1 - Disentangling goods, labor, and credit market frictions in three European economies
AU - Brzustowski, Thomas
AU - Petrosky-Nadeau, Nicolas
AU - Wasmer, Etienne
N1 - Publisher Copyright:
© 2016 Elsevier B.V.
PY - 2018/3
Y1 - 2018/3
N2 - We build a flexible model with search frictions in three markets: credit, labor, and goods markets. We then apply this model (called CLG) to three different economies: a flexible, finance-driven economy (the UK), an economy with wage moderation (Germany), and an economy with structural rigidities (Spain). In these three countries, goods and credit market frictions play a dominant role in entry costs and account for 75% to 85% of the total entry costs. In the goods market, adverse supply shocks are amplified through their propagation to the demand side, as they also imply income losses for consumers. This adds up to, at most, an additional 15% to 25% to the impact of the shocks. Finally, the speed of matching in the goods market and the credit market accounts for a small fraction of unemployment: most variation in unemployment comes from the speed of matching in the labor market.
AB - We build a flexible model with search frictions in three markets: credit, labor, and goods markets. We then apply this model (called CLG) to three different economies: a flexible, finance-driven economy (the UK), an economy with wage moderation (Germany), and an economy with structural rigidities (Spain). In these three countries, goods and credit market frictions play a dominant role in entry costs and account for 75% to 85% of the total entry costs. In the goods market, adverse supply shocks are amplified through their propagation to the demand side, as they also imply income losses for consumers. This adds up to, at most, an additional 15% to 25% to the impact of the shocks. Finally, the speed of matching in the goods market and the credit market accounts for a small fraction of unemployment: most variation in unemployment comes from the speed of matching in the labor market.
KW - Financial frictions
KW - Goods frictions
KW - Matching
KW - Search
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U2 - 10.1016/j.labeco.2016.05.006
DO - 10.1016/j.labeco.2016.05.006
M3 - Article
AN - SCOPUS:85006391483
VL - 50
SP - 180
EP - 196
JO - Labour Economics
JF - Labour Economics
SN - 0927-5371
ER -