Disentangling goods, labor, and credit market frictions in three European economies

Thomas Brzustowski, Nicolas Petrosky-Nadeau, Etienne Wasmer

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish (US)
Pages (from-to)180-196
Number of pages17
JournalLabour Economics
Volume50
DOIs
StatePublished - Mar 2018

Keywords

  • Financial frictions
  • Goods frictions
  • Matching
  • Search

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management

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