Job Uncertainty and Deep Recessions

By Morten O. Ravn, Vincent Sterk. 2017

212 citations recorded by the source corpus.

We study a model where households are subject to uninsurable unemployment risk, price setting is subject to nominal rigidities, and the labor market is characterized by matching frictions and inflexible wages. Higher risk of job loss and worsening job finding prospects during unemployment depress goods demand because of a precautionary savings motive. Lower goods demand reduces job vacancies and the job finding rate producing an amplification mechanism due to endogenous countercyclical income risk. Amplification derives from the combination of incomplete financial markets and frictional goods and labor markets. The model can account for key features of the Great Recession.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/7d0cc44bfe75d91a5952518072fe044626ac57b5

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In Economics and Econometrics

Citations in the corpus

The Discounted Euler Equation: A Note (2016, methodology): “We assume that m is low enough thatm < cH,t for all t. 12 Following Krusell et al. (2011) and Ravn and Sterk (2013), we will focus on the equilibrium of this economy in which the Euler equation of the high-productivity households holds with equality in all periods.”
Precautionary Saving Over the Business Cycle (2016, unknown): “From (38)(39) and the CRS assumption, the rm makes no pure prots in equilibrium (i.”
Macroeconomics and Household Heterogeneity (2016, background): “The recent papers by Ravn and Sterk (2013), McKay (2015) and Den Haan, Rehndal and Riegler (2016) are important examples that have stressed the importance of precautionary savings in the face of increased idiosyncratic risk for the dynamics of macro aggregates.”
Monetary Policy According to HANK (2018, unknown): “However, these models also fea- 5See Guerrieri and Lorenzoni (2011), Oh and Reis (2012), Ravn and Sterk (2012), McKay and Reis (2013), Gornemann et al. (2014), Auclert (2014), McKay et al. (2015), Den Haan et al. (2015), Bayer et al. (2015), and Werning (2015).”
Precautionary Savings, Illiquid Assets, and the Aggregate Consequences of Shocks to Household Income Risk (2019, background): “Likely some of the fluctuations in uncertainty in the data reflect endogenous responses through, say, unemployment as in Ravn and Sterk (2017) or, beyond the labor income focus of our paper, a change in the insurance offered by financial markets as in Brunnermeier and Sannikov (2016).”
Unemployment (fears) and Deflationary Spirals (2015, unknown): “Examples are Shao and Silos (2007), Nakajima (2012), Gorneman, Kuester, and Nakajima (2012), Favilukis, Ludvigson, and Stijn Van (2017), Jung and Kuester (2015), and Ravn and Sterk (2017).”
Transmission of Monetary Policy with Heterogeneity in Household Portfolios (2018, background): “2 Aggregate Fluctuations I solve for aggregate dynamics by first-order perturbation around the stationary equilibrium without aggregate shocks as in Reiter (2009). To reduce the dimensionality of the problem I follow Bayer et al.”
The Power of Forward Guidance Revisited (2016, unknown): “First, we use the method proposed by Reiter (2009) to create a linear representation of the dynamics of the incomplete markets model.”
Monetary Policy and Heterogeneity: An Analytical Framework (2018, unknown): “…agents increase their precautionary savings and decrease their consumption, amplifying the initial recession which further increases idiosyncratic risk, and so on (a mechanism previously emphasized in the form of endogenous unemployment risk by Ravn and Sterk (2017) and Challe et al (2017)).”