Perceived Unemployment Risks over Business Cycles
Year: 2025
Type: article
Abstract: We backcast subjective expectations on job finding and separation in the Survey of Consumer Expectations to 1978, and use real-time machine learning forecasting to proxy their objective counterparts. We document stickiness in job finding and separation expectations in reflecting changes in real-time job finding and separation risks and their substantial heterogeneity across observable and unobservable dimensions. Calibrating these facts into a heterogeneous-agent consumption-saving model reveals that belief stickiness attenuates the precautionary saving channel. As a result, workers under-insure during recessions, leading to a more sluggish recovery afterwards. The combination of high risk exposure and under-insurance due to belief stickiness operates as a novel amplification mechanism over the business cycle.
Source: Bank of Canada Research
DOI: 10.34989/swp-2025-23
Authors: Wang, Tao, Du, William, Monninger, Adrain, Qiu, Xincheng
Institution: Bank of Canada
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7078699603
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