A Steady-State Model of a Non-Walrasian Economywith Three Imperfect Markets

Unemployment may depend on equilibrium in other markets than the labor markets. Thispaper adresses this old idea by introducing search frictions on several markets: in a model ofcredit and labor market imperfections as in Wasmer and Weil (2004), I further introducesearch on the goods market. The model can be solved by blocks: on two of the threemarkets, the relevant “market tightness” is a constant of parameters. In particular, goodsmarket tightness, expressed as the ratio of unmatched consumers to unmatched firms, isequal to 1 which corresponds to a stochastic Say’s law: demand and supply arestochastically in equilibrium. Financial market tightness is also a function of three parametersrelated to financial frictions. Job creation and employment depend on the equilibrium in theother markets. Reciprocally, higher job destruction implies more volatility of income ofindividual consumers and higher destruction of consumption matches. This lowers profits andfurther reduces job creation. Finally, there are complementarities between frictions in eachmarket: in particular, the marginal effect of financial frictions on equilibrium unemployment isamplified by goods market frictions and vice versa....