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Macroeconomic effects of unemployment benefits in small open economies: a stock–flow consistent approach

Author

Listed:
  • Mikael Randrup Byrialsen

    (MaMTEP, Department of Business and Management, Aalborg University, Denmark)

  • Hamid Raza

    (MaMTEP, Department of Business and Management, Aalborg University, Denmark)

Abstract

This paper attempts to analyse the macroeconomic effects of unemployment benefits in a small open economy. We adopt a stock–flow consistent (SFC) approach with an emphasis on the dynamics of the labour market. We numerically solve the model using a combination of estimation and calibration to generate statistics for our key variables, reflecting features of the Danish economy. We then analyse the effects of a fall in the unemployment compensation rate on the economy. The results indicate that a fall in the compensation rate at a macro level leads to a trade-off between a fall in aggregate demand and a rise in net exports. Due to this trade-off, the net effect of a fall in the compensation rate on the aggregate unemployment rate tends to be weak. Our analyses in this paper raise several questions on the existing views regarding unemployment benefits adopted by a large strand of the economic literature.

Suggested Citation

  • Mikael Randrup Byrialsen & Hamid Raza, 2018. "Macroeconomic effects of unemployment benefits in small open economies: a stock–flow consistent approach," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 15(3), pages 335-363, November.
    • Handle: RePEc:elg:ejeepi:v:15:y:2018:i:3:p335-363
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    Citations

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    Cited by:

    1. Mikael Randrup Byrialsen & Hamid Raza, 2022. "Household debt and macroeconomic stability: An empirical stock‐flow consistent model for the Danish economy," Metroeconomica, Wiley Blackwell, vol. 73(1), pages 144-197, February.
    2. Bauermann, Tom, 2020. "Governmental policies to reduce unemployment during recessions: Insights from an ABM," Ruhr Economic Papers 847, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    3. Christos Pierros, 2021. "Assessing the internal devaluation policy implemented in Greece in an empirical stock‐flow consistent model," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 905-943, November.
    4. Mikael Randrup Byrialsen & Hamid Raza, "undated". "An Empirical Stock-Flow Consistent Macroeconomic Model for Denmark," Economics Working Paper Archive wp_942, Levy Economics Institute.

    More about this item

    Keywords

    stock–flow consistent models; labour market; unemployment benefits; macroeconomic outcomes; small open economies;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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