We discuss how cross-country unemployment insurance can be used to improve international risk sharing. We use a two-country business cycle model with incomplete financial markets and frictional labor markets where the unemployment insurance scheme operates across both countries. Cross-country...

"Unemployment insurance programs balance the benefits of consumption smoothing for unemployed workers against the disincentive effects of unemployment benefits. Such a balancing of benefits and costs is likely sensitive to the cyclical state of the economy, and hence the generosity of benefits...