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Credit Constraints and the Persistence of Unemployment

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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Contributor : Nicolas Dromel <>
Submitted on : Monday, November 14, 2011 - 9:39:34 AM
Last modification on : Tuesday, January 19, 2021 - 11:08:50 AM


  • HAL Id : halshs-00640674, version 1


Nicolas Dromel, Elie Kolakez, Etienne Lehmann. Credit Constraints and the Persistence of Unemployment. Labour Economics, Elsevier, 2010, 17, pp.823-834. ⟨halshs-00640674⟩



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