We construct, and then estimate by maximum likelihood, a tractable dynamic stochastic general equilibrium model with incomplete insurance and heterogenous agents. The key feature of our framework is that cross-sectional heterogeneity remains finite dimensional. The solution to the model thus...

Of the many good ideas currently being discussed in Europe, the most interesting proposal is to let national unemployment schemes manage the regular business cycle, and to provide European financing to extend the duration of unemployment benefits during a crisis period.