Time-Varying Employment Risks, Consumption Composition, and Fiscal Policy

Makoto Nirei, Sanjib Sarker and Kazufumi Yamana
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Sanjib Sarker: Department of Economics, Utah State University

No 35, UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics

Abstract: This study examines the response of aggregate consumption to active labor market policies that reduce unemployment. We develop a dynamic general equilibrium model with heterogeneous agents and uninsurable unemployment as well as policy regime shocks to quantify the consumption effects of policy. By implementing numerical experiments using the model, we demonstrate a positive effect on aggregate consumption even when the policy serves as a pure transfer from the employed to the unemployed. The positive effect on consumption results from the reduced precautionary savings of the households who indirectly benefit from the policy by a decreased unemployment hazard in future.

Keywords: Time-varying idiosyncratic risk; unemployment risk; precautionary saving; regimeswitching fiscal policy; transfers (search for similar items in EconPapers)
JEL-codes: E21 H53 J08 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014-12
New Economics Papers: this item is included in nep-dge and nep-mac
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Journal Article: Time-Varying Employment Risks, Consumption Composition, and Fiscal Policy (2016)
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