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The Unemployment‐Risk Channel in Business‐Cycle Fluctuations

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  • Tobias Broer
  • Jeppe Druedahl
  • Karl Harmenberg
  • Erik Öberg

Abstract

The unemployment‐risk channel (URC) amplifies an initial contraction through a reduction in consumption demand by workers who fear unemployment. Crucial for this are the dynamics of job separations and firm hiring. In US data, the job‐finding rate responds slower to identified macroeconomic shocks than the separation rate, but accounts for a similar share of the unemployment response. We calibrate a tractable heterogeneous‐agent new‐Keynesian model with endogenous separations and sluggish vacancy creation to match these facts. The share of output fluctuations due to the URC is twice as large as in a standard model with exogenous separations and free entry.

Suggested Citation

  • Tobias Broer & Jeppe Druedahl & Karl Harmenberg & Erik Öberg, 2025. "The Unemployment‐Risk Channel in Business‐Cycle Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(4), pages 1425-1458, October.
    • Handle: RePEc:wly:iecrev:v:66:y:2025:i:4:p:1425-1458
    DOI: 10.1111/iere.12773
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    1. Gabrovski, Miroslav & Silva, Mario Rafael, 2025. "Unemployment and labor productivity comovement: the role of firm exit," Journal of Economic Dynamics and Control, Elsevier, vol. 181(C).

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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