Stock Market Bubbles and Unemployment

Miao, Jianjun; Wang, Pengfei; Xu, Lifang

doi:10.2139/ssrn.2036594

Cited by 13 publications

(10 citation statements)

References 43 publications

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“…The authors find that during rare disaster events such as the global recession period, high-unlevered equity premium is the source of labour and stock market volatility, which simultaneously lowers stock market valuation and rises unemployment. Finally, Miao, wang, and Xu (2016) introduce credit constraint within a dmp labour market, which produces multiple equilibria positions. In one equilibrium, there exists bubble in the stock market, which relaxes credit constraints and allows firms to increase investment and hire more workers.…”

Section: Literature Reviewmentioning

confidence: 99%

The Unemployment-Stock Market Relationship in South Africa: Evidence from Symmetric and Asymmetric Cointegration Models

Phiri¹

2017

MGT

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In this study, we examine linear and nonlinear cointegration and causal relations between unemployment and stock market returns in South Africa using quarterly data collected between 1994:q1 and 2016:q1. Our empirical results reveal significant cointegration effects between the time series in both linear and nonlinear models, even though both frameworks ultimately reject the notion of any causal relations between the variables. Collectively, our study rejects the notion of unemployment being a good predictor for stock market returns and neither do developments in the stock market have any effect on the unemployment rate. Such evidence advocates for weak-form efficiency in the jse equity prices whereby unemployment data cannot help investors to predict the movement of future share prices and further suggests that policymakers cannot rely on stock market development as an avenue towards lowering the prevailingly high levels of unemployment as set in current macroeconomic policy objectives.

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Section: Literature Reviewmentioning

confidence: 99%

The Unemployment-Stock Market Relationship in South Africa: Evidence from Symmetric and Asymmetric Cointegration Models

Phiri¹

2017

MGT

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“…Labor market distortions are then expressed relative to this fundamental state. In contrast with both Kocherlakota (2011) and Miao, Wang, and Xu (2016), we also explore the quantitative ability of a matching model with bubbles to replicate the data. Finally, Cahuc and Challe (2012) study an OLG economy in which bubbles induce skilled workers to move away from the productive sector to the financial sector.…”

Section: Relation To the Literaturementioning

confidence: 99%

Frictional Unemployment with Stochastic Bubbles

Vuillemey

Wasmer

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in EconStor may D I S C U S S I O N P A P E R S E R I EIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.IZA Discussion Paper No. 10265 October 2016 ABSTRACTFrictional Unemployment with Stochastic Bubbles * Bubbles are recurrent events, which contribute to both macroeconomic and employment volatility. We introduce stochastic bubbles in the standard search-and matching model of the labor market. The economy alternates between latent and bubbly states, each being associated with a distinct solution for the market value of firms (respectively, stable or explosive). Bubbles in firm value induce distortions in hiring decisions and wages, which we explicitly characterize. Faced with bubbles, the social planner optimally deviates from the standard Hosios efficiency condition. The optimal share of workers in total surplus must be above the elasticity of hiring rates, by a small but increasing amount as the bubble expands. Finally, our specification for bubbles significantly improves the quantitative ability of the model to match U.S. data, along both real and financial dimensions. . The repeated rise and fall of firm market values can hardly be attributed only to technological innovations. Instead, these episodes are often described as economy-wide changes in beliefs, and referred to as "bubbles".The connection between financial fluctuations and employment is important but still lacks a consensus. We focus here on bubbles as an alternative source of financial fluctuations. As we document in the text, bubbly episodes strongly correlate with fluctuations in labor ma...

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“…Due to space restrictions, this paper is unable to provide a comprehensive introduction to that literature. 2 Related papers that I would include in the second generation EBC2 literature include Angeletos andLa'O (2011), Benhabib, Wang, andWen (2012), Brown (2010), Farmer and Plotnikov (2012), Gelain and Guerrazzi (2010), Guerrazzi (2011Guerrazzi ( , 2012, Heathcote and Perri (2012), Kashiwagi (2010), Kocherlakota (2011Kocherlakota ( , 2012, Michaillat andSaez (2013, 2014), Miao, Wang, and Xu (2012), Plotnikov (2013), and Schmitt-Grohé and Uribe (2011,2012). 3 Kocherlakota (2012) uses the term, incomplete labor markets, to refer to the concept that I call incomplete factor markets Farmer (2006, page 12).…”

Section: Notesmentioning

confidence: 99%

The Evolution of Endogenous Business Cycles

Farmer¹

2012

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This paper distinguishes two kinds of Endogenous Business Cycle models; EBC1 models, which display dynamic indeterminacy, and EBC2 models, which display steady-state indeterminacy. Both strands of the literature have their origins in the sunspot literature that developed at the University of Pennsylvania in the 1980s. I argue that EBC1 models are part of the evolution of modern macroeconomics that has classical roots dating back to the 1920s. EBC2 models provide a microfoundation to one of the most important ideas to emerge from Keynes ' (1936)

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Stock Market Bubbles and Unemployment

Cited by 13 publications

References 43 publications

The Unemployment-Stock Market Relationship in South Africa: Evidence from Symmetric and Asymmetric Cointegration Models

The Unemployment-Stock Market Relationship in South Africa: Evidence from Symmetric and Asymmetric Cointegration Models

Frictional Unemployment with Stochastic Bubbles

The Evolution of Endogenous Business Cycles

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