A0399
Title: Macro uncertainty, unemployment risk, and consumption dynamics
Authors: Joonseok Oh - Freie Universität Berlin (Germany) [presenting]
Anna Rogantini Picco - Sveriges Riksbank (Sweden)
Abstract: Households' income heterogeneity is important to explain consumption dynamics in response to aggregate macro uncertainty: an increase in uncertainty generates a consumption drop that is stronger for income-poor households. At the same time, labour markets are strongly responsive to macro uncertainty as the unemployment rate and the job separation rate rise, while the job finding rate falls. A HANK model with search and matching frictions in the labour market can account for these empirical findings. The mechanism at play is a feedback loop between income poorer households who, being subject to higher unemployment risk, contract consumption more in response to heightened uncertainty, and firms that post fewer vacancies following a drop in demand.
