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Kazufumi Yamana, Makoto Nirei and Sanjib Sarker
''Time-Varying Employment Risks, Consumption Composition, and Fiscal Policy''
( 2016, Vol. 36 No.2 )
This study examines the response of aggregate consumption to active labor market policies that reduce unemployment. We develop a dynamic general equilibrium model with heterogeneous agents and uninsurable unemployment as well as policy regime shocks to quantify the consumption effects of policy. By implementing numerical experiments using the model, we demonstrate a positive effect on aggregate consumption even when the policy serves as a pure transfer from the employed to the unemployed. The positive effect on consumption results from the reduced precautionary savings of the households who indirectly benefit from the policy by a decreased unemployment hazard in future.
Keywords: Time-varying idiosyncratic risk, unemployment risk, precautionary saving, regime- switching fiscal policy, transfers
JEL: E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data)
H5 - National Government Expenditures and Related Policies National Government Expenditures and Related Policies: General
Manuscript Received : Nov 05 2015 Manuscript Accepted : Apr 29 2016

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