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Euro Area unemployment insurance at the time of zero nominal interest rates

Author

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  • Guillaume Claveres
  • Jan Stráský

Abstract

The discussion about a fiscal stabilisation capacity as a way of providing more fiscal integration in the euro area has strengthened in the aftermath of the European sovereign debt crisis. Among the instruments that can be used for temporary macroeconomic stabilisation in the presence of both asymmetric and area-wide shocks, a euro area unemployment insurance scheme has attracted increased attention. We build a two-region DSGE model with supply, demand and labour market frictions and introduce in it an area-wide unemployment insurance scheme that is entitled to borrow in financial markets. The model is calibrated to the euro area core and periphery data. For a country-specific negative demand shock hitting the periphery, we find the scheme to reduce the drop in Periphery output by about one fifth and the drop in union output by about a third. The scheme is effective when some households are cut from financial markets, and even more so when the national government also loses market access.

Suggested Citation

  • Guillaume Claveres & Jan Stráský, 2018. "Euro Area unemployment insurance at the time of zero nominal interest rates," OECD Economics Department Working Papers 1498, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1498-en
    DOI: 10.1787/99b92f5b-en
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Euro Area unemployment insurance at the time of zero nominal interest rates
      by Christian Zimmermann in NEP-DGE blog on 2018-08-18 00:56:45

    More about this item

    Keywords

    fiscal union; search and matching; Unemployment insurance; zero lower bound;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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