| Popis: |
environment, an increase in the risk of remaining unemployed for a long time increases precautionary savings and reduces aggregate demand, which in turn exacerbates the unemployment duration further. We show that this feedback mechanism can propagate relatively modest exogenous shocks many times over and cause deep and prolonged recessions. A temporary rise in unemployment insurance, however, can largely break this vicious cycle and therefore assume the role of a powerful countercyclical policy tool. |
