lead to unemployment surges, as firms are forced to cut costs when financing becomes expensive or is no longer available …. As a result, all countries with risk premium shocks saw unemployment surge, even as euro area core countries managed to … contain unemployment as firms hoarded labor during the downturn. Most striking, wage bills in euro area crisis countries and …

"This paper uses a model with a continuum of equilibrium unemployment rates to explore the effectiveness of fiscal … policy. The existence of multiple steady state unemployment rates is explained by the absence of markets for the inputs to a … high unemployment equilibrium, induced by the self-fulfilling beliefs of market participants about asset prices. Using this …