Unemployment, Imperfect Risk Sharing, and the Monetary Business Cycle

Gregory Givens

No 200710, Working Papers from Middle Tennessee State University, Department of Economics and Finance

Abstract: This paper examines the impact of unemployment insurance on the propagation of monetary disturbances in a staggered price model of the business cycle. To motivate a role for risk sharing behavior, I construct a quantitative equilibrium model that gives prominence to an efficiency-wage theory of unemployment based on imperfectly observable labor effort. Dynamic simulations reveal that under a full insurance arrangement, staggered price-setting is incapable of generating persistent real effects of a monetary shock. Introducing partial insurance, however, bolsters the amount of endogenous wage rigidity present in the model, enriching the propagation mechanism. Positive real persistence appears in versions of the model that exclude capital accumulation as well as in versions that do not.

Keywords: Unemployment; Partial Insurance; Staggered Prices; Endogenous Persistence (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 E52 (search for similar items in EconPapers)
Date: 2007-07
New Economics Papers: this item is included in nep-cba, nep-ias, nep-lab, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Unemployment, Imperfect Risk Sharing, and the Monetary Business Cycle (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:mts:wpaper:200710

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