The Macroeconomics of Labor, Credit and Financial Market Imperfections

RePEc Short ID: pga928
ORCID iD: 0009-0006-2590-0322

Gabrovski, Miroslav; Kospentaris, Ioannis; Lebeau, Lucie

doi:10.24149/wp2409

Working Paper

The Macroeconomics of Labor, Credit and Financial Market Imperfections

Abstract: An increasing share of corporate loans, a critical source of firm credit, are sold off banks’ balance sheets and actively traded in a secondary over-the-counter market. We develop a microfounded equilibrium search-theoretic model with labor, credit and financial markets to explore how this secondary loan market affects the real economy, highlighting a trade-off: while the market reduces the steady-state level of unemployment by 0.6pp, it amplifies its response to a 1% productivity drop from 3.6% to 4.3%. Secondary market frictions matter significantly: eliminating them would not only reduce unemployment by 1.2pp, but also dampen its volatility down to 2.7%.

Keywords: search frictions; labor market; credit markets; financial linkages; secondary loan markets; over-the-counter markets;

JEL Classification: E24; E44; E51; G11; G12; G21; J64;

https://doi.org/10.24149/wp2409