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Optimal unemployment insurance in an equilibrium business-cycle model
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
Number of Authors: 2
2015 (English)In: Journal of Monetary Economics, ISSN 0304-3932, E-ISSN 1873-1295, Vol. 71, 99-118 p.Article in journal (Refereed) Published
Abstract [en]

The optimal cyclical behavior of unemployment insurance is characterized in an equilibrium search model with risk-averse workers. Contrary to the current US policy, the path of optimal unemployment benefits is pro-cyclical - positively correlated with productivity and employment. Furthermore, optimal unemployment benefits react non-monotonically to a productivity shock: in response to a fall in productivity, they rise on impact but then fall significantly below their pre-recession level during the recovery. As compared to the current US unemployment insurance policy, the optimal state-contingent unemployment benefits smooth cyclical fluctuations in unemployment and deliver substantial welfare gains.

Place, publisher, year, edition, pages
2015. Vol. 71, 99-118 p.
Keyword [en]
Unemployment insurance, Business cycles, Optimal policy, Search and matching
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:su:diva-117738DOI: 10.1016/j.jmoneco.2014.11.009ISI: 000353613400007OAI: oai:DiVA.org:su-117738DiVA: diva2:821261
Available from: 2015-06-15 Created: 2015-06-01 Last updated: 2017-12-04Bibliographically approved

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