Moen Meets Rotemberg: An Earthly Model of the Divine Coincidence

This paper develops a simple business-cycle model with divine coincidence: inflation is on target when unemployment is efficient. The divine coincidence arises from directed search under a quadratic price-adjustment cost.

January 2024 · Pascal Michaillat, Emmanuel Saez

Economic Slack

This graduate course presents various matching models of economic slack. It uses them to study business-cycle fluctuations; Keynesian, classical, and frictional unemployment; optimal monetary policy and the zero lower bound; and optimal government spending.

January 2024 · Pascal Michaillat

This book reviews basic facts about business cycles. It then develops a matching model to explain these business-cycle facts. Finally, it explains how monetary policy and government spending should be designed to stabilize business cycles.

January 2024 · Pascal Michaillat

Business Cycles and How to Tame Them

This minicourse presents basic facts about business cycles. It then develops a matching model to explain these business-cycle facts. Finally, it explains how monetary policy and government spending should be designed to tame business cycles.

December 2023 · Pascal Michaillat

u* = √uv

This paper shows that under simple but realistic assumptions, the efficient unemployment rate u* is the geometric average of the unemployment and vacancy rates. In the United States, 1930–2022, u* is stable and averages 4.1%.

January 2023 · Pascal Michaillat, Emmanuel Saez

This paper develops a policy-oriented business-cycle model with fluctuating unemployment and long zero-lower-bound episodes. The innovations are that producers and consumers meet through a matching function, and wealth enters the utility function.

April 2022 · Pascal Michaillat, Emmanuel Saez

Beveridgean Unemployment Gap

This paper develops a sufficient-statistic formula for the unemployment gap. The formula depends on the elasticity of the Beveridge curve, cost of unemployment, and recruiting cost. In the United States the unemployment gap is countercyclical and often positive.

December 2021 · Pascal Michaillat, Emmanuel Saez

Optimal Public Expenditure with Inefficient Unemployment

This paper shows that when unemployment is inefficient, optimal public expenditure deviates from the Samuelson rule to reduce the unemployment gap. Optimal stimulus spending depends on the unemployment gap, unemployment multiplier, and an elasticity of substitution.

May 2019 · Pascal Michaillat, Emmanuel Saez

A Macroeconomic Approach to Optimal Unemployment Insurance: Applications

This paper explores how the optimal generosity of unemployment insurance varies over the business cycle in the United States. It finds that the optimal replacement rate is countercyclical, just like the actual replacement rate.

May 2018 · Camille Landais, Pascal Michaillat, Emmanuel Saez

A Macroeconomic Approach to Optimal Unemployment Insurance: Theory

This paper develops a theory of optimal unemployment insurance in matching models. It derives a sufficient-statistic formula for optimal unemployment insurance, which is useful to determine the optimal cyclicality of unemployment insurance.

May 2018 · Camille Landais, Pascal Michaillat, Emmanuel Saez

A Theory of Countercyclical Government Multiplier

This paper develops a New Keynesian model in which the government multiplier doubles when the unemployment rate rises from 5% to 8%. The multiplier is so countercyclical because in bad times, on the labor market, job rationing dwarfs matching frictions.

January 2014 · Pascal Michaillat