Stock Market Bubbles and Unemployment

This paper introduces endogenous credit constraints in a search model of unemployment. These constraints generate multiple equilibria supported by self-fulfilling beliefs. A stock market bubble exists through a positive feedback loop mechanism. The collapse of the bubble tightens the credit constraints, causing firms to reduce investment and hirings. Unemployed workers are hard to find jobs generating high and persistent unemployment.

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Year of publication:	2012-01
Authors:	Miao, Jianjun ; WANG, PENGFEI ; Xu, Lifang
Institutions:	Department of Economics, Boston University
Subject:	stock market bubbles \| unemployment \| self-fulfilling beliefs \| credit constraints \| multiple equilibria

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Extent:	application/pdf
Series:	Boston University - Department of Economics - Working Papers Series.
Type of publication:	Book / Working Paper
Notes:	Number WP2012-011 46 pages
Classification:	E24 - Employment; Unemployment; Wages ; E44 - Financial Markets and the Macroeconomy ; J64 - Unemployment: Models, Duration, Incidence, and Job Search
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010540432