The Macroeconomic Effects of Unemployment Insurance Extensions: A Policy Rule-Based Identification Approach
52 Pages Posted: 4 Apr 2024 Last revised: 6 Feb 2025
Date Written: February 05, 2025
Abstract
We assess the macroeconomic effects of unemployment insurance (UI) extensions in the US through a novel identification scheme based on the design of the UI policy rule. Our approach exploits differences in the effects of demand shocks across US states with different responses in UI duration. Our results indicate that UI extensions have a significant stabilization role. We then show that a New Keynesian small-open-economy model with imperfect insurance against unemployment aligns with our empirical findings. Finally, we use the model to recover the implied UI multiplier, quantify the different transmission channels of UI extensions, and uncover their union-wide effects.
Keywords: Unemployment Insurance, UI extensions, Heterogeneous Agents
JEL Classification: E62, E24, E21, E30, J6, R12
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