Time-Varying Employment Risks and Consumption: A Quantitative General Equilibrium Study

Makoto Nirei, 誠 楡井 and Sanjib Sarker

No 08-04, IIR Working Paper from Institute of Innovation Research, Hitotsubashi University

Abstract: This paper quantifies the effect of time-varying employment risks on the fluctuations of aggregate consumption in a dynamic general equilibrium with incomplete markets. A government's redistribution policy through provision of unemployment insurance can cause a positive correlation between aggregate consumption and government's payments due to precautionary savings effects. The underlying mechanism is that a reduction of unemployment risk increases expected lifetime income substantially across a wide range of asset-holding groups when the risk reduction is sufficiently persistent. By contrast, the correlation between consumption and government becomes negative when government intervention hampers supply of goods.

Keywords: Time-varying idiosyncratic risk; employment risk; precautionary savings; regime-switching fiscal policy (search for similar items in EconPapers)
JEL-codes: E21 E62 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2008-09
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:hit:iirwps:08-04

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