Entry, unemployment, and the transmission of government spending shocks

Gregory Givens and Reid Tavoy

MPRA Paper from University Library of Munich, Germany

Abstract: Postwar data reveals significant co-movement between net firm entry and private consumption conditional on a government spending shock. We construct and estimate an equilibrium model that matches this observation both in a qualitative sense and with an eye towards replicating the quantitative effects over time. Our model combines endogenous entry subject to sunk costs with unemployment arising from unobservable effort. Key to its success is an insurance design that partially protects workers against job risk. This feature allows aggregate consumption to increase through compositional changes in the labor force while amplifying the procyclical response of firm entry.

Keywords: Government Spending; Consumption; Entry; Unemployment Insurance (search for similar items in EconPapers)
JEL-codes: E22 E24 E32 E62 J41 (search for similar items in EconPapers)
Date: 2024-08-15
New Economics Papers: this item is included in nep-dge and nep-mac
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