Asset Based Unemployment Insurance

This paper studies a model of optimal redistribution policies in which agents face unemployment risk and in which savings may provide partial self-insurance. Moral hazard arises as job search effort is unobservable. The optimal redistribution policies provide new insights into how an unemployment insurance scheme should be designed: First, the unemployment insurance policy is recursive in an agent's wealth level, and thus independent of the duration of the unemployment spell. Second, the level of benefit payments is negatively related to the agent's asset position. The reason behind the latter result is twofold; in addition to the first-order insurance effect of wealth, an increase in non-labor income (wealth) amplifies the opportunity cost of employment and thus reduces the agent's incentive to search for a job. During unemployment the agent decumulates assets and the sequence of benefit payments is observationally increasing - a result that stands in sharp contrast with previous studies.Unemployment insurance; Moral hazard; Self-insurance; Decentralized taxes

Inequality Constraints in Recursive Economies

Dynamic models with inequality constraints pose a challenging problem for two major reasons: Dynamic Programming techniques often necessitate a non established differentiability of the value function, while Euler equation based techniques have problematic or unknown convergence properties. This paper aims to resolve these two concerns: An "envelope theorem" is presented that establishes the differentiability of any element in the convergent sequence of approximate value functions when inequality constraints may bind. As a corollary, convergence of an iterative procedure on the Euler equation, usually referred to as time iteration, is ascertained. This procedure turns out to be very convenient from a computational perspective; dynamic economic problems with inequality constraints can be solved reliably and extremely efficiently by exploiting the theoretical insights provided by the paper.Inequality constraints; Envelope theorem; Recursive methods; Time iteration

Fiscal Policy in an Unemployment Crisis

This paper studies a model of equilibrium unemployment in which the efficacy of scal policy increases markedly in times of crises. A sudden rise in pessimism leads households to save rather than to spend, causing a fall in output and rising unemployment But as a persistent rise in unemployment fuels pessimism, the economy is set on a downward spiral in which thrift reinforces thrift. The government can put this process to an end. An expansion in public spending bolsters demand and lowers the unemployment rate both in the present and in the future. Pessimism is replaced by optimism and the vicious cycle is turned into a virtuous. The marginal impact of government spending on output is negative during normal times. But in a severe recession the scal multiplier rises to about three, and expansionary scal policy is unambiguously Pareto improving

Fiscal Policy in an Unemployment Crisis

This paper shows that large fiscal multipliers arise naturally from equilibrium unemployment dynamics. In response to a shock that brings the economy into a liquidity trap, an expansion in government spending increases output and causes a fall in the unemployment rate. Since movements in unemployment are persistent, the effects of current spending linger into the future, leading to an enduring rise in income. As an enduring rise in income boosts private demand, even a temporary increase in government spending sets in motion a virtuous employment-spending spiral with a large associated multiplier. This transmission mechanism contrasts with the conventional view in which fiscal policy may be efficacious only under a prolonged and committed rise in government spending, which engineers a spiral of increasing inflation

Fiscal Policy in an Unemployment Crisis

This article shows that equilibrium unemployment dynamics can significantly increase the efficacy of fiscal policy. In response to a shock that brings the economy into a liquidity trap, an expansion in government spending increases output and causes a fall in the unemployment rate. Since movements in unemployment are persistent, the effects of current spending prevail into the future, leading to an enduring rise in income. As an enduring rise in income boosts private demand, an increase in government spending sets in motion a virtuous employment-spending spiral with large effects on macroeconomic aggregates

Fiscal Policy in an Unemployment Crisis

This paper studies a model of equilibrium unemployment in which the efficacy of scal policy increases markedly in times of crises. A sudden rise in pessimism leads households to save rather than to spend, causing a fall in output and rising unemployment But as a persistent rise in unemployment fuels pessimism, the economy is set on a downward spiral in which thrift reinforces thrift. The government can put this process to an end. An expansion in public spending bolsters demand and lowers the unemployment rate both in the present and in the future. Pessimism is replaced by optimism and the vicious cycle is turned into a virtuous. The marginal impact of government spending on output is negative during normal times. But in a severe recession the scal multiplier rises to about three, and expansionary scal policy is unambiguously Pareto improving

The Language Of Expression: Solo Violin Through The Ages

The following paper centers around defining technical and expressive commonalities while also exploring the respective features of interpretation that distinguish the Sonata for Violin and Piano in G Major, Opus 30, No. 3 by Ludwig van Beethoven, Partita No. 2 in D Minor, BWV 1004 by Johann Sebastian Bach, and the Moderato Nobile movement from Violin Concerto in D Major, Opus 35 by Erich Wolfgang Korngold. These works exhibit the full range of the violin’s expressive capabilities in music from markedly different style periods. The following chapters include an evaluation of expressive aspects found in each work, and the ways in which they affect performance from the vantage point of the violinist

Fiscal Policy in an Unemployment Crisis

This paper argues that the effectiveness of fiscal policy may increase markedly during periods of low nominal interest rates and high, persistent, unemployment. An increase in government spending boosts economic activity and reduces the unemployment rate both in the present and in the future. As a less disconcerting future spurs a rise in private consumption, unemployment falls even further and triggers an additional rise in private demand, and so on. In a stylized model, I show that the marginal impact of government spending on output is equal to the reciprocal of the elasticity of intertemporal substitution. In a more realistic framework, the effect is somewhat attenuated and displays significant nonlinearities with respect to the depth of the crisis as well as the size of the stimulus package. But in a severe recession with an unemployment rate of eight percent or above, the fiscal multiplier is equal to 1.5

Inequality Constraints and Euler Equation Based Solution Methods

Solving dynamic models with inequality constraints poses a challenging problem for two major reasons: dynamic programming techniques are reliable but often slow, while Euler equation based methods are fast but have problematic or unknown convergence properties. This paper attempts to bridge this gap. I show that a common iterative procedure on the Euler equation - usually referred to as time iteration - delivers a sequence of approximate policy functions that converges to the true solution under a wide range of circumstances. These circumstances extend to an arbitrarily large, but nite, set of endogenous and exogenous state-variables as well as a very broad spectrum of occasionally binding constraints