Template-Type: ReDIF-Paper 1.0
Author-Name: Yavuz Arslan
Author-X-Name-First: Yavuz
Author-X-Name-Last: Arslan
Author-Name: Ahmet Degerli
Author-X-Name-First: Ahmet
Author-X-Name-Last: Degerli
Author-Name: Gazi Kabaş
Author-X-Name-First: Gazi
Author-X-Name-Last: Kabaş
Title: Unintended consequences of unemployment insurance benefits: the role of banks
Abstract: Many countries provide unemployment insurance (UI) to reduce individuals' income risk and to moderate fluctuations in the economy. However, to the extent that these policies are successful, they would be expected to reduce precautionary savings and hence bank deposits--households' main saving instrument. In this paper, we study this reduced incentive to save and uncover a novel distortionary mechanism through which UI policies affect the economy. In particular, we show that, when UI benefits become more generous, bank deposits fall. Since deposits are the main stable funding source for banks, this fall in deposits squeezes bank commercial lending, which in turn reduces corporate investment.
Length: 65 pages
Creation-Date: 2019-07
File-URL: https://www.bis.org/publ/work795.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work795.htm
File-Format: text/html
Number: 795
Classification-JEL: D14, G21, J65
Keywords: unemployment insurance, precautionary savings, bank deposits
Handle: RePEc:bis:biswps:795