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Job Uncertainty and Deep Recessions

Sterk, V; Ravn, MO; (2017) Job Uncertainty and Deep Recessions. Journal of Monetary Economics , 90 pp. 125-141. 10.1016/j.jmoneco.2017.07.003. Green open access

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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 motion 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.

Type: Article
Title: Job Uncertainty and Deep Recessions
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jmoneco.2017.07.003
Publisher version: https://doi.org/10.1016/j.jmoneco.2017.07.003
Language: English
Additional information: © 2017 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/)
Keywords: Job uncertainty; unemployment; endogenous countercyclical income risk; amplification
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/1566772
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