This paper illustrates why fiscal policy becomes more effective as unemployment rises in recessions. The theory is … based on the equilibrium unemployment model of Michaillat (forthcoming), in which jobs are rationed in recessions. Fiscal …; therefore fiscal policy reduces unemployment effectively. Formally the fiscal multiplier—the reduction in unemployment rate …

This paper models unemployment as the result of matching frictions and job rationing. Job rationing is a shortage of … returns to labor. During recessions, job rationing is acute, driving the rise in unemployment, whereas matching frictions … contribute little to unemployment. Intuitively, in recessions jobs are lacking, the labor market is slack, recruiting is easy and …

This paper characterizes optimal unemployment insurance (UI) over the business cycle using a model of equilibrium … unemployment in which jobs are rationed in recession. It offers a simple optimal UI formula that can be applied to a broad class of … equilibrium unemployment models. In addition to the usual statistics (risk aversion and micro-elasticity of unemployment with …