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- W2912759916 abstract "ABSTRACT We use a labor‐search model to explain why the worst employment slumps often follow expansions of household debt. We find that households protected by limited liability suffer from a household‐debt‐overhang problem that leads them to require high wages to work. Firms respond by posting high wages but few vacancies. This vacancy posting effect implies that high household debt leads to high unemployment. Even though households borrow from banks via bilaterally optimal contracts, the equilibrium level of household debt is inefficiently high due to a household‐debt externality . We analyze the role that a financial regulator can play in mitigating this externality." @default.
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- W2912759916 date "2019-03-18" @default.
- W2912759916 modified "2023-10-18" @default.
- W2912759916 title "Household Debt Overhang and Unemployment" @default.
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- W2912759916 doi "https://doi.org/10.1111/jofi.12760" @default.
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