Unemployment and GDP over the business cycle

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.

April 2023 · Pascal Michaillat
Efficient unemployment rate in the United States, 1930–2022

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
Optimal monetary policy and optimal government spending in the dynamic model of slack

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.

December 2022 · Pascal Michaillat
Optimal monetary policy with small and large unemployment gaps

An Economical Business-Cycle Model

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
Tightness gap and unemployment gap in the United States, 1951–2019

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 stimulus spending during the Great Recession in the United States

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
Optimal replacement rate of unemployment insurance in the United States, 1990–2014

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
Effect of unemployment insurance on labor market tightness across matching models

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