Research

• Financial market imperfections and labour market outcomes: (JPE Macro R&R) [Paper]
  • Abstract: How a credit crunch affects employment decision of firms across the size distribution, and what are the consequences on real activity and the unemployment rate? Motivated by new stylised facts from firm-level UK data, we develop a search and matching model of labor market with financial frictions to study the dynamics of firm level debt, liquid assets and employment adjustment across the size distribution. First, we show that how the interaction of frictions in labor and financial markets increase the misallocation of resources by prolonging both upward and downward adjustment of firms. Second, we find that credit tightening reduces the net employment of initially large firms by reallocating resources from labor to liquid financial assets, while the net employment of initially small firms increases due to general equilibrium effects on wages, consistent with our empirical findings. Third, we evaluate the impact of tax-financed policy interventions in the financial markets. We find that lump-sum transfers result in higher labor productivity and benefit more small firms, while subsidies to borrowing costs lower the unemployment rate and are more favorable to large and productive firms.
• Unemployment insurance and asset holdings: [Paper]
  • Abstract: I develop a heterogeneous agent model with incomplete financial markets and labor-market frictions to analyze Unemployment insurance in general equilibrium. Agents are subject to idiosyncratic employment shocks. Employed agents work and accumulate wealth to smooth their consumption during the unemployment spell. Also, both employed and unemployed agents can search for a job based on the wages and assets. Search in the labor market is directed; firms enter the market by posting vacancies and matching with one agent until the zero-profit condition is satisfied. First, I consider constant UI (constant during time) and measure welfare gain for different levels of replacement rate. Second, I analyze other time dependent UI policies.