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Countercyclical unemployment benefits: a general equilibrium analysis of transition dynamics

Author

Listed:
  • Erhan Bayraktar

    (University of Michigan)

  • Indrajit Mitra

    (Federal Reserve Bank of Atlanta)

  • Jingjie Zhang

    (University of International Business and Economics)

Abstract

We analyze the general equilibrium effects of countercyclical unemployment benefit policies. Our heterogenous-agent model features costly job search with imperfect insurance of unemployment risk and individual savings. Our model predicts: (1) the additional unemployment under a countercyclical policy relative to that under an acyclical policy to be a superlinear function of the aggregate shock?s size, (2) a higher unemployment rate sensitivity to UI policy changes when individual savings are relatively low. Our estimates of the effects of UI policy changes are based on transition dynamics following a large, unanticipated increase in the unemployment rate.

Suggested Citation

  • Erhan Bayraktar & Indrajit Mitra & Jingjie Zhang, 2024. "Countercyclical unemployment benefits: a general equilibrium analysis of transition dynamics," Mathematics and Financial Economics, Springer, volume 18, number 3, February.
    • Handle: RePEc:spr:mathfi:v:18:y:2024:i:2:d:10.1007_s11579-023-00351-x
    DOI: 10.1007/s11579-023-00351-x
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Unemployment benefit policy; General equilibrium; Mean field game; Transition dynamics;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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