FINANCIAL RISK AND UNEMPLOYMENT

Research output: Contribution to journalArticlepeer-review

Abstract

There is a strong correlation between corporate interest rates, their spreads relative to Treasuries, and the unemployment rate. We model how corporate interest rates affect equilibrium unemployment and vacancies, in a Diamond–Mortesen–Pissarides search and matching model. Our simple model permits the exploration of U.S. business cycle statistics through the lens of financial shocks. We calibrate the model using U.S. data without targeting business cycle statistics. Volatility in the corporate interest rate can explain a quantitatively meaningful portion of the labor market. Data on corporate firms support the hypothesis that firms facing more volatile financial conditions have more volatile employment.

Original languageEnglish
Pages (from-to)475-516
Number of pages42
JournalInternational Economic Review
Volume60
Issue number2
DOIs
StatePublished - May 2019

Fingerprint

Dive into the research topics of 'FINANCIAL RISK AND UNEMPLOYMENT'. Together they form a unique fingerprint.

Cite this