Government Commitment and Unemployment Insurance Over the Business Cycle
Yun Pei and
MPRA Paper from University Library of Munich, Germany
We investigate the role of government commitment to future policies in shaping unemployment insurance (UI) policy in a stochastic general equilibrium model of labor search and matching. Compared with the optimal(Ramsey)policy of a government with commitment, the policy under no commitment characterized by a Markov-perfect equilibrium has higher benefits and leads to higher unemployment rates in the steady state. We also find starkly different policy responses to a productivity shock or changes in unemployment. The differences arise because the Ramsey government can use an ex-ante committed policy to stimulate job search.
Keywords: Unemployment insurance; Commitment; Markov-perfect equilibrium; Business cycle (search for similar items in EconPapers)
JEL-codes: E61 H21 J64 J65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ias and nep-mac
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