Authors
Abstract
The financial crisis of 2007 showed that the impact of financial markets on macroeconomic developments is deep. The labor market was affected by financial variables. In this paper, the impact of financial shocks on labor market fluctuations with financial frictions in the the Iranian economy is investigated. Labor market reaches equilibrium via a search and matching process. A model of dynamic stochastic general equilibrium (DSGE) is designed for the Iranian economy and its parameters are estimated using Bayesian methods. The results show that a negative financial shock increases unemployment. In addition, financial frictions play an important role in amplifying the effects of financial shocks on unemployment.
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