Rubén Domínguez- Díaz
Welcome to my website!
I am Ph.D. candidate in Economics at the Bonn Graduate School of Economics and a doctoral fellow of the Research Training Group 2281 "The Macroeconomics of Inequality".
My research interests include macroeconomics, inequality, labor markets, and monetary economics.
You can find my CV here.
You can contact me at: ruben.dominguezdiaz [at] uni-bonn [dot] de
Hiring Stimulus and Precautionary Savings in a Liquidity Trap. [PDF]
Hiring subsidies have been enacted by several countries during the Great Recession. This paper assesses if such hiring stimulus can be a powerful tool for stimulating employment in a liquidity trap. Towards this end, I build a New Keynesian model with equilibrium unemployment and incomplete markets. Quantitatively, I find that an increase in hiring subsidies reduces unemployment more in a liquidity trap than it does during normal times. Central to this result is the presence of precautionary savings. By stimulating labor demand, hiring subsidies reduce unemployment risk. To the extent that households need to self-insure, they reduce precautionary savings and increase demand for consumption goods, generating inflationary pressures. At the zero lower bound, higher inflation expectations reduce the real interest rate, further stimulating consumption and hence amplifying the hiring stimulus.