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The Financial Crisis: Joblessness and Investmentlessness

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  • Zoega Gylfi

    (University of Iceland; Birkbeck, University of London; and Central Bank of Iceland Monetary Policy Committee)

Abstract

Financial crises follow a pattern that consists of changes in asset prices, real exchange rates, investment and employment. One noteworthy feature of this pattern is the "jobless recoveries" that often follow such crises. This was the experience of Finland and Sweden in the aftermath of their financial crises in the early 1990s and currently appears to be the case in the United States and many other countries. The behavior of unemployment during the crises mirrors that of investment, which is consistent with models of the natural rate of unemployment that make labor demand depend on investment in physical capital, new workers and customers. The implication is that the natural rate of unemployment falls during the investment boom that precedes a crisis and rises in its aftermath.

Suggested Citation

  • Zoega Gylfi, 2010. "The Financial Crisis: Joblessness and Investmentlessness," Capitalism and Society, De Gruyter, vol. 5(2), pages 1-28, October.
    • Handle: RePEc:bpj:capsoc:v:5:y:2010:i:2:n:3
    DOI: 10.2202/1932-0213.1075
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    Cited by:

    1. Hamid Raza & Bjorn Gudmundsson & Gylfi Zoega & Stephen Kinsella, 2016. "Two thorns of experience: financialisation in Iceland and Ireland," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(6), pages 771-789, November.
    2. Marco Guerrazzi, 2015. "Animal spirits, investment and unemployment: An old Keynesian view of the Great Recession," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(3), pages 343-358.
    3. Hoon Hian Teck, 2010. "Macroeconomic Effects of Over-Investment in Housing in an Aggregative Model of Economic Activity," Capitalism and Society, De Gruyter, vol. 5(2), pages 1-27, October.
    4. Hamid Raza & Gylfi Zoega & Stephen Kinsella, 2015. "Capital controls, financial crisis and the investment saving nexus:Evidence from Iceland," Working Papers 201518, Geary Institute, University College Dublin.

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