蝌蚪网 Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Does Unemployment Risk Affect Business Cycle Dynamics?
蝌蚪网 Journal: Macroeconomics
vol. 17,
no. 2, April 2025
(pp. 65–100)
Abstract
In this paper, I show that the decline in consumption during unemployment depends on both liquid and illiquid wealth; that unemployment predicts illiquid asset withdrawal, primarily when households have few liquid assets; and that increased idiosyncratic unemployment risk leads to a rise in saving overall, but also to a decline in investment in illiquid assets. Motivated by these new findings, I embed endogenous unemployment risk in a two-asset, heterogeneous-agent New Keynesian model. The model is consistent with the new evidence and suggests that aggregate shocks are amplified by a flight-to-liquidity when unemployment risk rises, particularly when monetary policy is constrained.Citation
Graves, Sebastian. 2025. "Does Unemployment Risk Affect Business Cycle Dynamics?" 蝌蚪网 Journal: Macroeconomics 17 (2): 65–100. DOI: 10.1257/mac.20220071Additional Materials
JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
- E21 Macroeconomics: Consumption; Saving; Wealth
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E52 Monetary Policy
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth