Universität zu Köln

Foell, Tobias . Collateral Constraints, Wage Rigidity, and Jobless Recoveries. B E J. Macroecon.. BERLIN: WALTER DE GRUYTER GMBH. ISSN 1935-1690

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Abstract

The Great Recession has drawn attention to the importance of macro-financial linkages. In this paper I explore the joint role of imperfections in labor and financial markets for the cyclical adjustment of the labor market. I show that jobless recoveries emerge when, upon exiting a recession, firms are faced with deteriorating credit conditions. On the financial side, collateral requirements affect the cost of borrowing for firms. On the employment side, hiring frictions and wage rigidity increase the need for credit, making the binding collateral constraint more relevant. In a general equilibrium business cycle model with search and matching frictions, I illustrate that tightening credit conditions calibrated from data negatively affect employment adjustments during recovery periods. Wage rigidity substantially amplifies this mechanism, generating empirically plausible fluctuations in employment and output.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Foell, Tobias UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-563774
DOI:	10.1515/bejm-2020-0221
Journal or Publication Title:	B E J. Macroecon.
Publisher:	WALTER DE GRUYTER GMBH
Place of Publication:	BERLIN
ISSN:	1935-1690
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language CYCLICAL BEHAVIOR; KEYNESIAN MODEL; LABOR; FLUCTUATIONS; UNEMPLOYMENT; CREDIT; ASYMMETRY; VACANCIES; SEARCH; REAL Multiple languages Economics Multiple languages
URI:	http://kups.ub.uni-koeln.de/id/eprint/56377