Unemployment Insurance in Macroeconomic Stabilization

Rohan Kekre

No 29505, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: I study unemployment insurance (UI) in general equilibrium with incomplete markets, search frictions, and nominal rigidities. An increase in generosity raises the aggregate demand for consumption if the unemployed have a higher marginal propensity to consume (MPC) than the employed or if agents precautionary save in light of future income risk. This raises output and employment unless monetary policy raises the nominal interest rate. In an analysis of the U.S. economy over 2008-2014, UI benefit extensions had a contemporaneous output multiplier around 1. The unemployment rate would have been as much as 0.4pp higher absent these extensions.

JEL-codes: D52 E21 E62 J64 J65 (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-ias, nep-lab and nep-mac
Note: EFG ME PE
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Published as Rohan Kekre, 2023. "Unemployment Insurance in Macroeconomic Stabilization," Review of Economic Studies, vol 90(5), pages 2439-2480.

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Related works:
Journal Article: Unemployment Insurance in Macroeconomic Stabilization (2023)
Working Paper: Unemployment Insurance in Macroeconomic Stabilization (2016)
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