1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Euro Area unemployment insurance at the time of zero nominal interest rates

The discussion about a fiscal stabilisation capacity as a way of providing more fiscal integration in the euro area has strengthened in the aftermath of the European sovereign debt crisis. Among the instruments that can be used for temporary macroeconomic stabilisation in the presence of both asymmetric and area-wide shocks, a euro area unemployment insurance scheme has attracted increased attention. We build a two-region DSGE model with supply, demand and labour market frictions and introduce in it an area-wide unemployment insurance scheme that is entitled to borrow in financial markets. The model is calibrated to the euro area core and periphery data. For a country-specific negative demand shock hitting the periphery, we find the scheme to reduce the drop in Periphery output by about one fifth and the drop in union output by about a third. The scheme is effective when some households are cut from financial markets, and even more so when the national government also loses market access.

English

Keywords: Unemployment insurance, search and matching, fiscal union, zero lower bound
JEL: E52: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy; J65: Labor and Demographic Economics / Mobility, Unemployment, Vacancies, and Immigrant Workers / Unemployment Insurance; Severance Pay; Plant Closings; E63: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy; E32: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Business Fluctuations; Cycles
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