The Unemployment‐Risk Channel in Business‐Cycle Fluctuations

Tobias Broer (), Jeppe Druedahl, Karl Harmenberg and Erik Öberg
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Tobias Broer: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris, IIES Stockholm University, CEPR - Center for Economic Policy Research
Jeppe Druedahl: UCPH - University of Copenhagen = Københavns Universitet, CEBI - Center for Economic Behavior and Inequality - UCPH - University of Copenhagen = Københavns Universitet
Karl Harmenberg: UiO - University of Oslo, BI Norwegian Business School [Oslo]
Erik Öberg: Uppsala University, CEMOF, UCLS - Uppsala Center for Labor Studies

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Abstract: The unemployment‐risk channel (URC) amplifies an initial contraction through a reduction in consumption demand by workers who fear unemployment. Crucial for this are the dynamics of job separations and firm hiring. In US data, the job‐finding rate responds slower to identified macroeconomic shocks than the separation rate, but accounts for a similar share of the unemployment response. We calibrate a tractable heterogeneous‐agent new‐Keynesian model with endogenous separations and sluggish vacancy creation to match these facts. The share of output fluctuations due to the URC is twice as large as in a standard model with exogenous separations and free entry.

Date: 2025-10
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Published in International Economic Review, 2025, 66 (4), pp.1425-1458. ⟨10.1111/iere.12773⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-05379605

DOI: 10.1111/iere.12773

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