Anatomy of a Credit Crunch : From Capital to Labor Markets

Why are financial crises associated with a sustained rise in unemployment? We develop a tractable model with frictions in both credit and labor markets to study the aggregate and micro-level implications of a credit crunch—i.e., a sudden tightening of collateral constraints. When we simulate a credi...

Full description

Bibliographic Details
Main Authors:	Buera, Francisco J., Fattal Jaef, Roberto N., Shin, Yongseok
Format:	Journal Article
Language:	en_US
Published:	Elsevier 2014
Subjects:	Financial frictions Unemployment capital markets labor markets Credit
Online Access:	http://hdl.handle.net/10986/20724

id	okr-10986-20724
recordtype	oai_dc
spelling	okr-10986-207242021-04-23T14:03:59Z Anatomy of a Credit Crunch : From Capital to Labor Markets Buera, Francisco J. Fattal Jaef, Roberto N. Shin, Yongseok Financial frictions Unemployment capital markets labor markets Credit Why are financial crises associated with a sustained rise in unemployment? We develop a tractable model with frictions in both credit and labor markets to study the aggregate and micro-level implications of a credit crunch—i.e., a sudden tightening of collateral constraints. When we simulate a credit crunch calibrated to match the observed decline in the ratio of debt to non-financial assets of the United States business sector following the 2007–2008 crisis, our model generates a sharp decline in output—explained by a drop in aggregate total factor productivity and investment—and a protracted increase in unemployment. We then explore the micro-level impact by tracking the employment dynamics for firms of different sizes and ages. The credit crunch causes a much larger reduction in the net employment growth rate of small, young establishments relative to that of large, old producers, consistent with the recent empirical findings in the literature. 2014-12-16T17:13:20Z 2014-12-16T17:13:20Z 2014-11-11 Journal Article Review of Economic Dynamics 1094-2025 http://hdl.handle.net/10986/20724 en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Elsevier Publications & Research :: Journal Article UNITED STATES
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	Financial frictions Unemployment capital markets labor markets Credit
spellingShingle	Financial frictions Unemployment capital markets labor markets Credit Buera, Francisco J. Fattal Jaef, Roberto N. Shin, Yongseok Anatomy of a Credit Crunch : From Capital to Labor Markets
geographic_facet	UNITED STATES
description	Why are financial crises associated with a sustained rise in unemployment? We develop a tractable model with frictions in both credit and labor markets to study the aggregate and micro-level implications of a credit crunch—i.e., a sudden tightening of collateral constraints. When we simulate a credit crunch calibrated to match the observed decline in the ratio of debt to non-financial assets of the United States business sector following the 2007–2008 crisis, our model generates a sharp decline in output—explained by a drop in aggregate total factor productivity and investment—and a protracted increase in unemployment. We then explore the micro-level impact by tracking the employment dynamics for firms of different sizes and ages. The credit crunch causes a much larger reduction in the net employment growth rate of small, young establishments relative to that of large, old producers, consistent with the recent empirical findings in the literature.
format	Journal Article
author	Buera, Francisco J. Fattal Jaef, Roberto N. Shin, Yongseok
author_facet	Buera, Francisco J. Fattal Jaef, Roberto N. Shin, Yongseok
author_sort	Buera, Francisco J.
title	Anatomy of a Credit Crunch : From Capital to Labor Markets
title_short	Anatomy of a Credit Crunch : From Capital to Labor Markets
title_full	Anatomy of a Credit Crunch : From Capital to Labor Markets
title_fullStr	Anatomy of a Credit Crunch : From Capital to Labor Markets
title_full_unstemmed	Anatomy of a Credit Crunch : From Capital to Labor Markets
title_sort	anatomy of a credit crunch : from capital to labor markets
publisher	Elsevier
publishDate	2014
url	http://hdl.handle.net/10986/20724
_version_	1764447064180129792

Anatomy of a Credit Crunch : From Capital to Labor Markets

Similar Items