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The Impact of Unemployment Insurance and Unsecured Credit on Business Cycles

Michael D. Irwin

Journal of Political Economy: Macroeconomics2025https://doi.org/10.1086/734998article
ABDC A
Weight
0.37

Abstract

How does unsecured consumer credit impact the effectiveness of unemployment insurance (UI) in insuring households against idiosyncratic and aggregate risk over the business cycle? The answer depends on whether credit and UI act as complementary or substitutable forms of consumption insurance for households. Using a real business cycle model with frictional labor markets and defaultable debt, I find that unsecured credit amplifies the welfare gains of a policy that extends the duration of UI during recessions. UI extensions mitigate the rise in the default risk premium of unsecured credit during recessions, which allows households to better smooth consumption over the business cycle.

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https://doi.org/https://doi.org/10.1086/734998

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@article{michael2025,
  title        = {{The Impact of Unemployment Insurance and Unsecured Credit on Business Cycles}},
  author       = {Michael D. Irwin},
  journal      = {Journal of Political Economy: Macroeconomics},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1086/734998},
}

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The Impact of Unemployment Insurance and Unsecured Credit on Business Cycles

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Evidence weight

0.37

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.16 × 0.4 = 0.06
M · momentum0.53 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.