High Discounts and Low Fundamental Surplus: An Equivalence Result for Unemployment Fluctuations

Indrajit Mitra, Taeuk Seo and Yu Xu

No 2021-22, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: Ljungqvist and Sargent (2017) (LS) show that unemployment fluctuations can be understood in terms of a quantity they call the “fundamental surplus.” However, their analysis ignores risk premia, a force that Hall (2017) shows is important in understanding unemployment fluctuations. We show how the LS framework can be adapted to incorporate risk premia. We derive an equivalence result that relates parameters in economies with risk premia to those of an artificial economy without risk premia. We show how to use properties of the artificial economy to deduce how risk premia affect unemployment dynamics in the original economy.

Keywords: risk premia; fundamental surplus; time-varying discounts; unemployment fluctuations (search for similar items in EconPapers)
JEL-codes: E23 E24 E32 E44 J23 J24 J31 J41 J63 (search for similar items in EconPapers)
Pages: 31
Date: 2021-09-24
New Economics Papers: this item is included in nep-dge, nep-mac, nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in 2021

Downloads: (external link)
https://www.atlantafed.org/-/media/documents/resea ... ent-fluctuations.pdf (application/pdf)

Related works:
Journal Article: High Discounts and Low Fundamental Surplus: An Equivalence Result for Unemployment Fluctuations (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:93477

Ordering information: This working paper can be ordered from
pubs@frbatlanta.org

DOI: 10.29338/wp2021-22

Access Statistics for this paper

More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Rob Sarwark (rob.sarwark@atl.frb.org).