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Fiscal Stimulus and Unemployment Dynamics

Chun-Hung Kuo and Hiroaki Miyamoto

No EMS_2014_05, Working Papers from Research Institute, International University of Japan

Abstract: Focusing on both hiring and firing margins, this paper revisits effects of fiscal expansion on unemployment. We provide evidence that an increase in government spending increases the job finding rate and reduces the separation rate, lowering unemployment in the U.S. by using a structural VAR model. We then develop a DSGE model with search frictions where job separation is endogenously determined. Our model can capture the empirical pattern of responses of the job finding, separation, and unemployment rates to a government spending shock. We also demonstrate that model's predictions are in contrast with earlier studies that assume exogenous separation.

Keywords: Fiscal Policy; Unemployment; Labor market; Search and matching; Endogenous separation (search for similar items in EconPapers)
JEL-codes: E24 E62 J64 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2014-05
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
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https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2014_05.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Fiscal stimulus and unemployment dynamics (2019) Downloads
Working Paper: Fiscal Stimulus and Unemployment Dynamics (2015) Downloads
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