We study the importance of financial markets for (un)employment fluctuations in a model with matching frictions where firms borrow under limited enforcement. Borrowing affects employment through a `debt bargaining channel': higher debt improves the bargaining position of employers with workers and increases the incentive to hire. We estimate the model structurally and find that the debt bargaining channel accounts for about 30 percent of unemployment fluctuations. We find empirical support for the channel at the micro level using firm level data from Compustat.

Financial markets and unemployment

Monacelli, Tommaso;Trigari, Antonella
In corso di stampa

Abstract

We study the importance of financial markets for (un)employment fluctuations in a model with matching frictions where firms borrow under limited enforcement. Borrowing affects employment through a `debt bargaining channel': higher debt improves the bargaining position of employers with workers and increases the incentive to hire. We estimate the model structurally and find that the debt bargaining channel accounts for about 30 percent of unemployment fluctuations. We find empirical support for the channel at the micro level using firm level data from Compustat.
Monacelli, Tommaso; Quadrini, Vincenzo; Trigari, Antonella
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/4053266
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