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Unemployment Insurance in Chile: Does it Stabilize the Business Cycle?

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Author Info
Rodrigo Cerda () (Instituto de Economía. Pontificia Universidad Católica de Chile.)
Rodrigo Vergara () (Instituto de Economía. Pontificia Universidad Católica de Chile.)

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Abstract

We explore the stabilizing effects of unemployment insurance in Chile. A dynamic general equilibrium model is calibrated for the Chilean economy for the 1960-2000 period. We assume that the economy is subject to exogenous technological shocks and that a fraction of the population is liquidity constrained. Our main conclusion is that unemployment insurance has some stabilizing effect on the business cycle, especially on consumption, but that this effect is of the second order of magnitude. We also find that the larger the fraction of the population that is liquidity constrained, the more likely the program is welfare improving. Our results suggest that the objective of stabilizing the business cycle would be more efficiently achieved using alternative instruments.

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Publisher Info
Paper provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 302.

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Date of creation: 2005
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Publication status: Published as "Unemployment Insurance in Chile: Does it Stabilize the Business Cycle?", Journal of Policy Modeling, Vol. 99, N° 3, pp. 473-488, 2007.
Handle: RePEc:ioe:doctra:302

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Related research
Keywords: Unemployment insurance; business cycle;

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

References listed on IDEAS
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  1. Enrique G. Mendoza, 2005. "Sudden Stops in an Equilibrium Business Cycle Model with Credit Constraints: A Fisherian Deflation of Tobin's Q," 2005 Meeting Papers 307, Society for Economic Dynamics. [Downloadable!]
  2. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-42, February. [Downloadable!] (restricted)
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  3. Raimundo Soto & Raphael Bergoeing, 2002. "Testing Real Business Cycle Models in an Emerging Economy," Documentos de Trabajo 219, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
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  4. Hamermesh, Daniel S, 1982. "Social Insurance and Consumption: An Empirical Inquiry," American Economic Review, American Economic Association, vol. 72(1), pages 101-13, March. [Downloadable!] (restricted)
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  5. Enrique G. Mendoza & Katherine A. Smith, 2002. "Margin Calls, Trading Costs, and Asset Prices in Emerging Markets: The Finanical Mechanics of the 'Sudden Stop' Phenomenon," NBER Working Papers 9286, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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