Arbeitspapier
Unemployment benefits extensions at the zero lower bound on nominal interest rate
In this paper we investigate the impact of the recent US unemployment benefits extension on the labor market dynamic when the nominal interest rate is held at the zero lower bound (ZLB). Using a New Keynesian model, our quantitative experiments suggest that, in contrast to the existing literature that ignores the liquidity trap situation, unemployment benefits expansions cause a wage and inflationary pressure which curb the increase in real interest rate and slightly reduce unemployment at the ZLB. Outside the ZLB, it has adverse effects, meaning that unemployment insurance benefits should be adjusted according to the macroeconomic conditions if the scope is to reduce unemployment. Furthermore, the ZLB amplifies the labor market downturn. An unconstrained monetary policy rule, i.e. negative interest rate, could have reduced the unemployment rate by around 1 percentage point in the trough of the recession.
- Language
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Englisch
- Bibliographic citation
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Series: SFB 649 Discussion Paper ; No. 2014-019
- Classification
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Wirtschaft
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Price Level; Inflation; Deflation
Business Fluctuations; Cycles
Interest Rates: Determination, Term Structure, and Effects
Monetary Policy
Fiscal Policy
- Subject
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Zero lower bound
New Keynesian models
Matching frictions
Monetary policy
Unemployment benefits extensions
- Event
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Geistige Schöpfung
- (who)
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Albertini, Julien
Poirier, Arthur
- Event
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Veröffentlichung
- (who)
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Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
- (where)
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Berlin
- (when)
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2014
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Albertini, Julien
- Poirier, Arthur
- Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
Time of origin
- 2014
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