A BEJM Contributions article.

Abstract

This paper examines the impact of unemployment insurance on the propagation of monetary disturbances in a staggered price model of the business cycle. To motivate a role for risk sharing behavior, I construct a quantitative equilibrium model that gives prominence to an efficiency-wage theory of unemployment based on an imperfectly observable labor effort. Dynamic simulations reveal that under a full insurance arrangement, staggered price-setting is incapable of generating persistent real effects of a monetary shock. Introducing partial insurance, however, bolsters the amount of endogenous wage rigidity present in the model, enriching the propagation mechanism. Positive real persistence appears in versions of the model that exclude capital accumulation as well as in versions that do not.

Submitted: July 6, 2007 · Accepted: January 24, 2008 · Published: March 19, 2008

Recommended Citation

Givens, Gregory E. (2008) "Unemployment, Imperfect Risk Sharing, and the Monetary Business Cycle," The B.E. Journal of Macroeconomics: Vol. 8 : Iss. 1 (Contributions), Article 13.
Available at: http://www.bepress.com/bejm/vol8/iss1/art13