Unemployment Insurance in Macroeconomic Stabilization

Rohan Kekre

The Review of Economic Studies, 2023, vol. 90, issue 5, 2439-2480

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 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 0.4 pp higher absent these extensions.

Keywords: Unemployment insurance; Aggregate demand; Marginal propensity to consume; Precautionary saving (search for similar items in EconPapers)
Date: 2023
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Related works:
Working Paper: Unemployment Insurance in Macroeconomic Stabilization (2021)
Working Paper: Unemployment Insurance in Macroeconomic Stabilization (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:90:y:2023:i:5:p:2439-2480.

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