The macroeconomic effects of unemployment insurance extensions: A policy rule-based identification approach

Rubén Domínguez-Díaz and Donghai Zhang
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Rubén Domínguez-Díaz: BANCO DE ESPAÑA
Donghai Zhang: NATIONAL UNIVERSITY OF SINGAPORE AND UNIVERSITY OF BONN

No 2521, Working Papers from Banco de España

Abstract: We assess the macroeconomic effects of unemployment insurance (UI) extensions in the US through a novel identification scheme based on the design of the UI policy rule. Our approach exploits differences in the effects of demand shocks across US states with different responses in UI duration. Our results indicate that UI extensions have a significant stabilization role. We then show that a New Keynesian small-open-economy model with imperfect insurance against unemployment aligns with our empirical findings. Finally, we use the model to recover the implied UI multiplier, quantify the different transmission channels of UI extensions and uncover their union-wide effects.

Keywords: unemployment insurance; UI extensions; heterogeneous agents (search for similar items in EconPapers)
JEL-codes: E21 E24 E30 E62 J60 R12 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2025-04
New Economics Papers: this item is included in nep-dge and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2521

DOI: 10.53479/39665

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