About: We propose a model with involuntary unemployment, incomplete markets, and nominal rigidity, in which the effects of government spending are state-dependent. An increase in government purchases raises aggregate demand, tightens the labor market and reduces unemployment. This in turn lowers unemployment risk and thus precautionary saving, leading to a larger response of private consumption than in a model with perfect insurance. The output multiplier is further amplified through a composition effect, as the fraction of high-consumption households in total population increases in response to the spending shock. These features, along with the matching frictions in the labor market, generate significantly larger multipliers in recessions than in expansions. As the pool of job seekers is larger during downturns than during expansions, the concavity of the job-finding probability with respect to market tightness implies that an increase in government spending reduces unemployment risk more in the former case than in the latter, giving rise to countercyclical multipliers.

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About: We propose a model with involuntary unemployment, incomplete markets, and nominal rigidity, in which the effects of government spending are state-dependent. An increase in government purchases raises aggregate demand, tightens the labor market and reduces unemployment. This in turn lowers unemployment risk and thus precautionary saving, leading to a larger response of private consumption than in a model with perfect insurance. The output multiplier is further amplified through a composition effect, as the fraction of high-consumption households in total population increases in response to the spending shock. These features, along with the matching frictions in the labor market, generate significantly larger multipliers in recessions than in expansions. As the pool of job seekers is larger during downturns than during expansions, the concavity of the job-finding probability with respect to market tightness implies that an increase in government spending reduces unemployment risk more in the former case than in the latter, giving rise to countercyclical multipliers. Goto Sponge NotDistinct Permalink

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type	abstract
value	We propose a model with involuntary unemployment, incomplete markets, and nominal rigidity, in which the effects of government spending are state-dependent. An increase in government purchases raises aggregate demand, tightens the labor market and reduces unemployment. This in turn lowers unemployment risk and thus precautionary saving, leading to a larger response of private consumption than in a model with perfect insurance. The output multiplier is further amplified through a composition effect, as the fraction of high-consumption households in total population increases in response to the spending shock. These features, along with the matching frictions in the labor market, generate significantly larger multipliers in recessions than in expansions. As the pool of job seekers is larger during downturns than during expansions, the concavity of the job-finding probability with respect to market tightness implies that an increase in government spending reduces unemployment risk more in the former case than in the latter, giving rise to countercyclical multipliers.
Subject	Demand Capitalism Fiscal policy Mathematical and quantitative methods (economics) Healthcare reform in the United States Unemployment Waste of resources Business cycle Personal finance Business cycle theories Macroeconomic aggregates Social problems in medicine Personal financial problems Health insurance in the United States Intertemporal economics
part of	Taking off into the Wind: Unemployment Risk and State-Dependent Government Spending Multipliers()
is abstract of	Taking off into the Wind: Unemployment Risk and State-Dependent Government Spending Multipliers()
is hasSource of	covid:ann/target/4dd4d0eeafe1d15cda7ed5f850acb6d5033e8adf covid:ann/target/6aa096680acb7f794972e36e99d87a30de403433 covid:ann/target/0db008a734354b2164ca8020e1d4aefaf0411301 covid:ann/target/82a7c030fe15722a06273d76a9829265f2c1d3d2 covid:ann/target/4e98fef8a77550bed9c417b19ead625d3a19f89a covid:ann/target/3c110a4fde314775ab820f8d1b7234054b36d084

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