[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/red/sed016/1293.html
   My bibliography  Save this paper

Layoff risk, the welfare cost of business cycles, and monetary policy

Author

Listed:
  • Yuta Takahashi

    (Northwestern University)

  • Lawrence Schmidt

    (University of Chicago)

  • Konstantin Milbradt

    (Norwestern University)

  • Ian Dew-Becker

    (Northwestern University)

  • David Berger

    (Northwestern University)

Abstract
The single strongest predictor of changes in the Fed Funds rate in the period 1982--2007 was the level of the layoff rate (initial unemployment claims divided by total employment). This fact is puzzling from the perspective of standard monetary models because they typically imply that the welfare gains of stabilizing employment fluctuations are small. We argue that these welfare costs are small because standard models do not capture the fact that when people lose their jobs, they tend to experience large, permanent, and largely uninsurable income losses. We augment a standard New Keynesian model with a labor market featuring endogenous countercyclical layoffs by firms that are associated with permanent reductions in human capital. In our benchmark calibration, welfare may be increased by 4 percent of lifetime consumption when the central bank's policy rule responds to the layoff rate. This provides a quantitative rationale for the Federal Reserve's dual mandate.

Suggested Citation

  • Yuta Takahashi & Lawrence Schmidt & Konstantin Milbradt & Ian Dew-Becker & David Berger, 2016. "Layoff risk, the welfare cost of business cycles, and monetary policy," 2016 Meeting Papers 1293, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1293
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2016/paper_1293.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Diego Anzoategui & Diego Comin & Mark Gertler & Joseba Martinez, 2019. "Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 67-110, July.
    2. Simon Jäger & Benjamin Schoefer & Josef Zweimüller, 2023. "Marginal Jobs and Job Surplus: A Test of the Efficiency of Separations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(3), pages 1265-1303.
    3. Morten O Ravn & Vincent Sterk, 2021. "Macroeconomic Fluctuations with HANK & SAM: an Analytical Approach," Journal of the European Economic Association, European Economic Association, vol. 19(2), pages 1162-1202.
    4. Hoffmann, Eran B. & Malacrino, Davide, 2019. "Employment time and the cyclicality of earnings growth," Journal of Public Economics, Elsevier, vol. 169(C), pages 160-171.
    5. Seth Pruitt & Nicholas Turner, 2018. "The Nature of Household Labor Income Risk," Finance and Economics Discussion Series 2018-034, Board of Governors of the Federal Reserve System (U.S.).
    6. Nils M. Gornemann & Keith Kuester & Makoto Nakajima, 2021. "Doves for the Rich, Hawks for the Poor? Distributional Consequences of Systematic Monetary Policy," Opportunity and Inclusive Growth Institute Working Papers 50, Federal Reserve Bank of Minneapolis.
    7. Ivan Sutoris, 2018. "Asset Prices in a Production Economy with Long-run and Idiosyncratic Risk," Working Papers 2018/4, Czech National Bank.
    8. Benjamin Schoefer, 2018. "Marginal Jobs and Job Surplus: Evidence from Separations and Unemployment Insurance," 2018 Meeting Papers 1309, Society for Economic Dynamics.
    9. Hirschbühl, Dominik & Spitzer, Martin, 2021. "International medium-term business cycles," Working Paper Series 2536, European Central Bank.
    10. Eran B. Hoffmann & Mr. Davide Malacrino, 2018. "Employment Time and the Cyclicality of Earnings Growth," IMF Working Papers 2018/115, International Monetary Fund.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed016:1293. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.