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Unemployment Insurance in Chile: Does it Stabilize the Business Cycle?

Author

Listed:
  • Rodrigo Cerda

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

  • Rodrigo Vergara

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

We explore the stabilizing effects of unemployment insurance in Chile. A dynamic general equilibrium model is calibrated for the Chilean economy for the 1960-2000 period. We assume that the economy is subject to exogenous technological shocks and that a fraction of the population is liquidity constrained. Our main conclusion is that unemployment insurance has some stabilizing effect on the business cycle, especially on consumption, but that this effect is of the second order of magnitude. We also find that the larger the fraction of the population that is liquidity constrained, the more likely the program is welfare improving. Our results suggest that the objective of stabilizing the business cycle would be more efficiently achieved using alternative instruments.

Suggested Citation

  • Rodrigo Cerda & Rodrigo Vergara, 2005. "Unemployment Insurance in Chile: Does it Stabilize the Business Cycle?," Documentos de Trabajo 302, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:302
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    References listed on IDEAS

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    2. David Easley & Nicholas M. Kiefer & Uri Possen, 1985. "An Equilibrium Analysis of Optimal Unemployment Insurance and Taxation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(Supplemen), pages 989-1010.
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    Cited by:

    1. Rodrigo Cerda & Fernando Coloma, 2009. "Estudio Actuarial de los Fondos de Cesantía 2008," Working Papers 33, Superintendencia de Pensiones, revised Sep 2009.
    2. Carlos Madeira, 2024. "The effect of Covid pension withdrawals and the Universal Guaranteed Pension on the income of future retirees in Chile," BIS Working Papers 1176, Bank for International Settlements.
    3. Solange Berstein & Eduardo Fajnzylber & Pamela Gana & Isabel Poblete, 2007. "Cinco Años de Funcionamiento del Seguro de Cesantía en Chile," Working Papers 23, Superintendencia de Pensiones, revised Dec 2007.

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    More about this item

    Keywords

    Unemployment insurance; business cycle;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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