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The elasticity of the unemployment rate with respect to benefits

  • Kai Christoffel
  • Keith Kuester

If the Mortensen and Pissarides model with efficient bargaining is calibrated to replicate the fluctuations of unemployment over the business cycle, it implies a far too strong rise of the unemployment rate when unemployment benefits rise. This paper explores an alternative, right-to-manage bargaining scheme. This also generates the right degree of fluctuations of unemployment but at the same time implies a reasonable elasticity of unemployment with respect to benefits.

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File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers//2008/wp08-15.pdf
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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 08-15.

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Date of creation: 2008
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Handle: RePEc:fip:fedpwp:08-15
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  1. James Costain & Michael Reiter, 2005. "Business Cycles, Unemployment Insurance and the Calibration of Matching Models," Working Papers 215, Barcelona Graduate School of Economics.
  2. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 0853, European Central Bank.
  3. Antonella Trigari, 2006. "The Role of Search Frictions and Bargaining for Inflation Dynamics," Working Papers 304, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  5. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
  6. Christoffel, Kai & Kuester, Keith, 2008. "Resuscitating the wage channel in models with unemployment fluctuations," Working Paper Series 0923, European Central Bank.
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