Whether, When and How to Extend Unemployment Benefits: Theory and Application to COVID-19
Kurt Mitman and
No 15748, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We investigate the optimal response of unemployment insurance to economic shocks, both with and without commitment. The optimal policy with commitment follows a modified Baily-Chetty formula that accounts for job search responses to future UI benefit changes. As a result, the optimal policy with commitment tends to front-load UI, unlike the optimal discretionary policy. In response to shocks intended to mimic those that induced the COVID-19 recession, we find that a large and transitory increase in UI is optimal; and that a policy rule contingent on the change in unemployment, rather than its level, is a good approximation to the optimal policy.
Keywords: Markov perfect equilibrium; optimal policy; Unemployment insurance (search for similar items in EconPapers)
JEL-codes: E6 H1 J65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ias and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at firstname.lastname@example.org
Journal Article: Whether, when and how to extend unemployment benefits: Theory and application to COVID-19 (2021)
Working Paper: Whether, When and How to Extend Unemployment Benefits: Theory and Application to COVID-19 (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:15748
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=15748
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().