Welfare Cost of Fluctuations: when Labor Market Search Interacts with Financial Frictions

Eleni Iliopulos, Francois Langot and Thepthida Sopraseuth

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Abstract: We provide a quantitative assessment of welfare costs of fluctuations in a search model with financial frictions. The matching process in the labor market leads positive shocks to reduce unemployment less than negative shocks increase it. We show that the magnitude of this non-linearity is magnified frictions. This asymmetric effect of the business cycle leads to sizable welfare costs. The model also accounts for the responsiveness of the job finding rate to the business cycle as financial frictions endogenously generate counter-cyclical opportunity costs of opening a vacancy and wage sluggishness.

Keywords: Welfare; business cycle; financial friction; labor market search (search for similar items in EconPapers)
Date: 2014-06
New Economics Papers: this item is included in nep-dge and nep-mac
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01020872v1
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Citations: View citations in EconPapers (4)

Published in 2014

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Related works:
Journal Article: Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions (2019)
Working Paper: Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions (2019)
Working Paper: Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions (2019)
Working Paper: Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions (2019)
Working Paper: Welfare Cost of Fluctuations. When Labor Market Search Interacts with Financial Frictions (2018)
Working Paper: Welfare Cost of Fluctuations when Labor Market Search Interacts with Financial Frictions (2017)
Working Paper: Welfare Cost of Fluctuations when Labor Market Search Interacts with Financial Frictions (2016)
Working Paper: Welfare Cost of Fluctuations: when Labor Market Search Interacts with Financial Frictions (2014)
Working Paper: Welfare Cost of Fluctuations: when Labor Market Search Interacts with Financial Frictions (2014)
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