Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/232837
Authors: 
Mitman, Kurt
Rabinovich, Stanislav
Year of Publication: 
2021
Series/Report no.: 
IZA Discussion Papers No. 14085
Abstract: 
We investigate the optimal response of unemployment insurance to economic shocks, both with and without commitment. The optimal policy with commitment follows a modified Baily-Chetty formula that accounts for job search responses to future UI benefit changes. As a result, the optimal policy with commitment tends to front-load UI, unlike the optimal discretionary policy. In response to shocks intended to mimic those that induced the COVID-19 recession, we find that a large and transitory increase in UI is optimal; and that a policy rule contingent on the change in unemployment, rather than its level, is a good approximation to the optimal policy.
Subjects: 
unemployment insurance
unemployment
optimal policy
COVID-19
JEL: 
J65
E6
H1
Document Type: 
Working Paper

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