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Unemployment benefit extensions at the zero lower bound

Author

Listed:
  • Julien Albertini

    (HU Berlin - Humboldt-Universität zu Berlin = Humboldt University of Berlin = Université Humboldt de Berlin)

  • Arthur Poirier

    (GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université)

Abstract

In this paper, we investigate the impact of the recent US unemployment benefit extension on labor market dynamics when the nominal interest rate is held at the zero lower bound (ZLB). Using a New Keynesian model, our quantitative experiments suggest that, in contrast to the existing literature that ignores the liquidity trapsituation, the unemployment benefit extension has reduced unemployment by 0.7 percentage points on average. The inflationary pressure caused by the benefit extension reduces the real interest rate and offsets the job search effects and the drop in firms' vacancy postings resulting from the increase in wages. Outsidethe ZLB, it has adverse effects on unemployment. Furthermore, the ZLB explains 0.9 percentage points of the rise in unemployment. (Copyright: Elsevier)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Julien Albertini & Arthur Poirier, 2015. "Unemployment benefit extensions at the zero lower bound," Post-Print halshs-02188496, HAL.
    • Handle: RePEc:hal:journl:halshs-02188496
    DOI: 10.1016/j.red.2015.07.003
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    as
    1. Fernández-Villaverde, Jesús & Gordon, Grey & Guerrón-Quintana, Pablo & Rubio-Ramírez, Juan F., 2015. "Nonlinear adventures at the zero lower bound," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 182-204.
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    Cited by:

    1. Marius Clemens & Guillaume Claveres, 2017. "Unemployment Insurance Union," 2017 Meeting Papers 1340, Society for Economic Dynamics.
    2. repec:hum:wpaper:sfb649dp2016-013 is not listed on IDEAS
    3. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2016. "Unemployment and Business Cycles," Econometrica, Econometric Society, vol. 84(4), pages 1523-1569, July.
    4. Julien Albertini & Valentin Jouvanceau & Stéphane Moyen, 2022. "State-Contingent Forward Guidance," Working Papers 2205, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    5. Albertini, Julien & Fairise, Xavier & Terriau, Anthony, 2023. "Unemployment insurance, recalls, and experience rating," Journal of Macroeconomics, Elsevier, vol. 75(C).
    6. Moyen, Stéphane & Stähler, Nikolai & Winkler, Fabian, 2019. "Optimal unemployment insurance and international risk sharing," European Economic Review, Elsevier, vol. 115(C), pages 144-171.
    7. Lechthaler, Wolfgang, 2016. "Protectionism in a liquidity trap," Economics Letters, Elsevier, vol. 145(C), pages 165-167.
    8. Min-Hyuk Cho & Chan-Goo Yi, 2022. "Adaptive Social Innovation Derived from Digital Economy and Its Impact on Society and Policy," Sustainability, MDPI, vol. 14(6), pages 1-20, March.
    9. Brent Bundick & Nicolas Petrosky-Nadeau, 2021. "From Deviations to Shortfalls: The Effects of the FOMC’s New Employment Objective," Research Working Paper RWP 21-04, Federal Reserve Bank of Kansas City.
    10. Ryu‐ichiro Murota, 2018. "Aggregate demand deficiency, labor unions, and long‐run stagnation," Metroeconomica, Wiley Blackwell, vol. 69(4), pages 868-888, November.
    11. Pei, Yun & Xie, Zoe, 2021. "A quantitative theory of time-consistent unemployment insurance," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 848-870.
    12. Wilhelm, Stefan, 2023. "Efficiency of short-time work schemes and the role of monetary policy," Journal of Macroeconomics, Elsevier, vol. 78(C).
    13. Albertini, Julien & Lan, Hong, 2016. "The importance of time-varying parameters in new Keynesian models with zero lower bound," SFB 649 Discussion Papers 2016-013, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.

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    More about this item

    Keywords

    Zero lower bound; New Keynesian models; Search and matching frictions; Monetary policy; Unemployment benefits extensions;
    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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