Formal description of the model The instantaneous flow utility from working is given by R圖G1,Y,T,t,周) When unemployed German workers receive Ui as a proportion of the earnings in their last job. The replacement rate is 55% We also allow for utility of leisure The flow utility from unemployment is given by R①,X1A,尽货蝠A2O,X展是 with yu=0.55 and m is an iid shock with a normal distributionFormal Description of the model • The instantaneous flow utility from working is given by • When unemployed German workers receive UI as a proportion of the earnings in their last job. The replacement rate is 55%. • We also allow for utility of leisure. The flow utility from unemployment is given by with U=0.55 and  is an iid shock with a normal distribution. RW wE,Gt ,Xt ,Tt ,t , RUE,X,w1,,Uw1 0 E,X,