Author : Paolo Martellini
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (119 download)
Book Synopsis Revisiting the Hypothesis of High Discounts and High Unemployment by : Paolo Martellini
Download or read book Revisiting the Hypothesis of High Discounts and High Unemployment written by Paolo Martellini and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We revisit the hypothesis that cyclical fluctuations in unemployment are caused by shocks to the discount rate. We use a rich search-theoretic model of the labor market in which the UE, EU and EE rates are all endogenous. Analytically, we show that an increase in the discount rate lowers the UE rate and, under some natural conditions, it lowers the EU rate. Quantitatively, we show that an increase in the discount rate from 4 to 10% generates a 3.5% decline in the UE rate and a 6% decline in the EU rate. The response of the unemployment rate is minuscule. These findings are at odds with the actual behavior of the US labor market over the business cycle, which features a negative comovement between the UE and EU rates and large unemployment fluctuations. We show that aggregate productivity shocks generate the correct comovement between the UE and EU rates, as well as large unemployment fluctuations.