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Fiscal stimulus and unemployment dynamics

Author

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  • Kuo Chun-Hung

    (National Tsing Hua University, Hsinchu, Taiwan)

  • Miyamoto Hiroaki

    (International Monetary Fund, NW Washington, DC, USA)

Abstract
Focusing on both hiring and firing margins, this paper revisits effects of fiscal stimulus on unemployment. We develop a DSGE model with search frictions where job separation is endogenously determined. The predictions of the model are in contrast with earlier studies that assume exogenous separation. Our model can capture the empirical pattern of responses of the job finding, separation, and unemployment rates to a government spending shock, obtained from a structural VAR model with the US data. However, our model fails to capture the response of vacancies and the volatility of unemployment. We discuss the roles of cyclical movements of matching efficiency and labor force participation to fix this model’s shortcoming.

Suggested Citation

  • Kuo Chun-Hung & Miyamoto Hiroaki, 2019. "Fiscal stimulus and unemployment dynamics," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(2), pages 1-19, June.
    • Handle: RePEc:bpj:bejmac:v:19:y:2019:i:2:p:19:n:1
    DOI: 10.1515/bejm-2016-0211
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    Cited by:

    1. Park, Joshua K. & Meng, Xiangcai, 2024. "Crowding out or crowding in? Reevaluating the effect of government spending on private economic activities," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 102-117.
    2. Ngouhouo Ibrahim & Chouafi Nguekam Orfé & Bocker Poumie, 2020. "Would rising real GDP boost the combined effects of economic openness and public investment on unemployment in Cameroon?," Economics Bulletin, AccessEcon, vol. 40(2), pages 1634-1644.
    3. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Ayşegül Şahin, 2017. "Gross Worker Flows over the Business Cycle," American Economic Review, American Economic Association, vol. 107(11), pages 3447-3476, November.
    4. MATSUMAE Tatsuyoshi & HASUMI Ryo, 2016. "Impacts of Government Spending on Unemployment: Evidence from a Medium-scale DSGE Model(in Japanese)," ESRI Discussion paper series 329, Economic and Social Research Institute (ESRI).
    5. Lu, Zhenkun & Kameda, Keigo, 2024. "Impact of fiscal policies on the labor market with search friction: An estimated DSGE model for Japan," Journal of the Japanese and International Economies, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    endogenous separation; fiscal policy; labor market; search and matching; unemployment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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