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Effects of Credit Supply on Unemployment and Inequality
Federal Reserve Bank of St. Louis, Working Papers
The Great Recession, which was preceded by the financial crisis, resulted in higher unemployment and inequality. We propose a simple model where firms producing varieties face labor-market frictions and credit constraints. In the model, tighter credit leads to lower output, lower number of vacancies, and higher directed-search unemployment. Where workers are more productive at higher levels of firm output, lower credit supply increases firm capital intensity, raises inequality by increasing thedoi:10.20955/wp.2016.013 fatcat:ppmhs6ppfnevdac2iixdlm6xe4