Revisiting the Hypothesis of High Discounts and High Unemployment

Paolo Martellini, Guido Menzio and Ludo Visschers

The Economic Journal, 2021, vol. 131, issue 637, 2203-2232

Abstract: We revisit the hypothesis that cyclical fluctuations in unemployment are caused by shocks to the discount rate. We use a simple but rich search-theoretic model of the labour market in which the UE, EU and EE rates are all endogenous. Analytically, we show that an increase in the discount rate lowers the UE rate and, under some natural conditions, it lowers the EU rate. Quantitatively, we show that an increase in the discount rate from 4% to 10% generates a 3.5% decline in the UE rate and a 6% decline in the EU rate. These findings are at odds with the actual behaviour of the US labour market over the business cycle, which features a negative comovement between the UE and EU rates.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1093/ej/ueaa138 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Revisiting the Hypothesis of High Discounts and High Unemployment (2020)
Working Paper: Revisiting the Hypothesis of High Discounts and High Unemployment (2020)
Working Paper: Revisiting the Hypothesis of High Discounts and High Unemployment (2019)
Working Paper: Revisiting the Hypothesis of High Discounts and High Unemployment (2019)
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:oup:econjl:v:131:y:2021:i:637:p:2203-2232.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Economic Journal is currently edited by Francesco Lippi

More articles in The Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press () and ().