IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Optimal Unemployment Insurance in GE: a RobustCalibration Approach

  • Marco Cozzi

    ()

    (Queen`s)

This paper implements a simple Monte Carlo calibration approach to quantitatively study the Hansen and Imrohoroglu (1992) economy, a GE model with uninsurable employment risk, designed to assess the optimal replacement rate for a public Unemployment Insurance scheme. The results of this sensitivity analysis are consistent with the original findings, but with several caveats. One novel result in particular is that the sampling distribution of the optimal UI is bimodal. Depending on the calibrated parameters, the optimal UI is in one of two regions: a very generous scheme with high replacement rates, where insurance is mainly provided by the UI scheme, or one with low replacement rates, where insurance is mainly achieved through self-insurance. Even in the absence of moral hazard, it is never optimal to provide full insurance. Moreover, for many plausible parameters` conÂ…gurations, the welfare maximizing replacement rate does not decrease with the level of MH. The qualitative patterns and quantitative fiÂ…ndings are not altered substantially when considering an enlarged labor force, which includes the marginally attached workers. Finally, the parameters representing the hours worked, the leisure share in the households` consumption bundle, and the risk aversion have a fiÂ…rst order impact on the average welfare. The determination of the optimal UI scheme depends heavily on them. This fiÂ…nding suggests that extra caution should be paid when calibrating these parameters in similar environments.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1272.pdf
File Function: First version 2011
Download Restriction: no

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1272.

as
in new window

Length: 61 pages
Date of creation: Aug 2011
Date of revision:
Publication status: Published in the Economics Letters, Vol. 117 (1), pp. 28-31.
Handle: RePEc:qed:wpaper:1272
Contact details of provider: Postal: Kingston, Ontario, K7L 3N6
Phone: (613) 533-2250
Fax: (613) 533-6668
Web page: http://qed.econ.queensu.ca/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. DeJong, David N. & Ingram, Beth F. & Whiteman, Charles H., 2000. "A Bayesian approach to dynamic macroeconomics," Journal of Econometrics, Elsevier, vol. 98(2), pages 203-223, October.
  2. Robert Shimer & Iván Werning, 2005. "Liquidity and insurance for the unemployed," Staff Report 366, Federal Reserve Bank of Minneapolis.
  3. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
  4. Orazio P. Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and Bumps in Lifetime Consumption," NBER Working Papers 5350, National Bureau of Economic Research, Inc.
  5. Per Krusell & Toshihiko Mukoyama & Ayşegül Şahin, 2010. "Labour-Market Matching with Precautionary Savings and Aggregate Fluctuations," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1477-1507.
  6. Canova, Fabio, 1994. "Statistical Inference in Calibrated Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages S123-44, Suppl. De.
  7. Atila Abdulkadiroglu & Burhanettin Kuruscu & Aysegul Sahin, 2002. "Unemployment insurance and the role of self-insurance," Discussion Papers 0102-27, Columbia University, Department of Economics.
  8. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 113-172.
  9. John P Martin, 1998. "What Works Among Active Labour Market Policies: Evidence from OECD Countries' Experiences," RBA Annual Conference Volume, in: Guy Debelle & Jeff Borland (ed.), Unemployment and the Australian Labour Market Reserve Bank of Australia.
  10. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models—Rejoinder," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 211-219.
  11. Gary D. Hansen & Ayse Imrohoroglu, 1990. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," UCLA Economics Working Papers 583, UCLA Department of Economics.
  12. Christopher A. Sims, 2004. "Econometrics for Policy Analysis: Progress and Regress," De Economist, Springer, vol. 152(2), pages 167-175, 06.
  13. DeJong, David N & Ingram, Beth Fisher & Whiteman, Charles H, 1996. "A Bayesian Approach to Calibration," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 1-9, January.
  14. Stephen R. G. Jones & W. Craig Riddell, . "The Measurement Of Unemployment: An Empirical Approach," Canadian International Labour Network Working Papers 09, McMaster University.
  15. Martin Gervais, 2012. "Optimal Unemployment Insurance in a Directed Search Model," 2012 Meeting Papers 1177, Society for Economic Dynamics.
  16. Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, vol. 73(2), pages 571-627, 03.
  17. Young, Eric R., 2004. "Unemployment insurance and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1683-1710, November.
  18. Pollak, Andreas, 2007. "Optimal unemployment insurance with heterogeneous agents," European Economic Review, Elsevier, vol. 51(8), pages 2029-2053, November.
  19. Marco Cozzi, 2011. "Precautionary Savings and Wealth Inequality: a Global Sensitivity Analysis," Working Papers 1270, Queen's University, Department of Economics.
  20. Nicola Pavoni, 2009. "Optimal Unemployment Insurance, With Human Capital Depreciation, And Duration Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 323-362, 05.
  21. van den Berg, Gerard J, 1990. "Nonstationarity in Job Search Theory," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 255-77, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:qed:wpaper:1272. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Babcock)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.