Please Note: This seminar will be given online.
Actuarial Science and Financial Mathematics seminar series
University of Michigan
Link to join seminar: Hosted on Zoom
Countercyclical Unemployment Benefits: General Equilibrium Analysis of Transition Dynamics
We analyze the general equilibrium effects of countercyclical unemployment benefit policies. Our heterogenous-agent model features costly job search with imperfect insurance of unemployment risk and individual savings. Our model predicts: (1) the additional unemployment under a countercyclical policy relative to that under an acyclical policy to be a superlinear function of the aggregate shock’s size, (2) a higher unemployment rate sensitivity to UI policy changes when individual savings are relatively low. Our estimates of the effects of UI policy changes are based on transition dynamics; we show these estimates to be substantially different from estimates based on steady-state analyses. Joint work with Indrajit Mitra of the Federal Reserve Board of Atlanta and Jingjie Zhang of University of International Business and Economics (Beijing).