This paper investigates the implications of agency problems on credit markets when vacancy costs require some external financing for the propagation properties of an otherwise standard labor search model. The countercyclical premium on external finance greatly increases the elasticity of...

Frictions in the labor market are important for understanding the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces realistic equity premium and...

This papers investigates the propagation properties of credit market imperfections when they affect the cyclical reallocation of labor. A costly state verification problem in the capital lending relationship leads to endogenous job separations of two types: workers lose their jobs either because...

We develop a two-sector search-matching model of the labor market with imperfect mobility of workers, augmented to incorporate a housing market and a frictional goods market. Homeowners use home equity as collateral to finance idiosyncratic consumption opportunities. A financial innovation that...

Unlike many other contracts, employment contracts are subject to various external administrative procedures governing separations, ranging from compulsory severance payments and advance notice periods (usually seniority based), to collective layoff procedures (usually depending on the firm's...

Unemployment may depend on equilibrium in other markets than the labor markets. This paper adresses this old idea by introducing search frictions on several markets: in a model of credit and labor market imperfections as in Wasmer and Weil (2004), I further introduce search on the goods market....