This paper develops a theory characterizing the effects of fiscal policy on unemployment over the business cycle. The … theory is based on a model of equilibrium unemployment in which jobs are rationed in recessions. Fiscal policy in the form of … government spending on public-sector jobs reduces unemployment, especially during recessions: the fiscal multiplier …

doubles when unemployment rises from 5% to 8%. Theoretically, such countercyclicality arises because of a nonlinearity, namely … in recessions but large in expansions. Hence, government consumption reduces unemployment much more in recessions than in …

To generate big responses of unemployment to productivity changes, researchers have reconfigured matching models in … introducing costly acquisition of credit, or by positing government mandated unemployment compensation and layoff costs. All of … these redesigned matching models increase responses of unemployment to movements in productivity by diminishing the …

which there are multiple equilibrium unemployment rates. The model has two equations in common with the new-Keynesian model …

frictions and unemployment insurance, when the latter is only imperfectly related to search effort. A balanced social insurance … volatility and persistence of vacancies and unemployment. …

of unemployment and vacancies to negative shocks to the aggregate productivity of labor. …