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U. S. regional business cycles and the natural rate of unemployment

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  • Howard J. Wall
  • Gylfi Zoega

Abstract

Estimates of the natural rate of unemployment are important in many macroeconomic models used by economists and policy advisors. This paper shows how such estimates might benefit from closer attention to regional developments. Regional business cycles do not move in lockstep, and greater dispersion among regions can affect estimates of the natural rate of unemployment. There is microeconomic evidence that employers are more reluctant to cut wages than they are to raise them. Accordingly, the relationship between wage inflation and vacancies is convex: An increase in vacancies raises wage inflation at an increasing rate. The authors’ empirical results are consistent with this and indicate that, if all else had remained constant, the reduction in the dispersion of regional unemployment rates between 1982 and 2000 would have meant a 2-percentage-point drop in the natural rate of aggregate unemployment.

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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2004)
Issue (Month): Jan ()
Pages: 23-32

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Handle: RePEc:fip:fedlrv:y:2004:i:jan:p:23-32:n:v.86no.1

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Keywords: Unemployment ; Regional economics;

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  1. Michael Woodford, 1994. "Structural Slumps," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1784-1815, December.
  2. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages 507-22, June.
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  9. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
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  12. Michael T. Owyang & Howard J. Wall, 2004. "Structural breaks and regional disparities in the transmission of monetary policy," Working Papers, Federal Reserve Bank of St. Louis 2003-008, Federal Reserve Bank of St. Louis.
  13. Brainard, S Lael & Cutler, David M, 1993. "Sectoral Shifts and Cyclical Unemployment Reconsidered," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 219-43, February.
  14. Fratantoni, Michael & Schuh, Scott, 2003. " Monetary Policy, Housing, and Heterogeneous Regional Markets," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 35(4), pages 557-89, August.
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  16. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262161877, December.
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Cited by:
  1. Strauss, Jack, 2013. "Does housing drive state-level job growth? Building permits and consumer expectations forecast a state’s economic activity," Journal of Urban Economics, Elsevier, vol. 73(1), pages 77-93.
  2. Owyang, Michael T. & Rapach, David E. & Wall, Howard J., 2009. "States and the business cycle," Journal of Urban Economics, Elsevier, vol. 65(2), pages 181-194, March.
  3. Roberto Bande & Marika Karanassou, 2011. "The NRU and the Evolution of Regional Disparities in Spanish Unemployment," Working Papers, Queen Mary, University of London, School of Economics and Finance 681, Queen Mary, University of London, School of Economics and Finance.
  4. Jürgen Kromphardt & Camille Logeay, 2007. "Changes in the Balance of Power Between the Wage and Price Setters and the Central Bank: Consequences for the Phillips Curve and the NAIRU," Kiel Working Papers 1354, Kiel Institute for the World Economy.
  5. Vassilis Monastiriotis, 2008. "The Emergence of Regional Policy in Bulgaria: regional problems, EU influences and domestic constraints," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe, Hellenic Observatory, LSE 15, Hellenic Observatory, LSE.
  6. Hiroshi Fujiki & Howard J. Wall, 2006. "Controlling for geographic dispersion when estimating the Japanese Phillips curve," Working Papers, Federal Reserve Bank of St. Louis 2006-057, Federal Reserve Bank of St. Louis.
  7. Luca Bindelli, 2005. "Systematic monetary policy and persistence," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 05.07, Université de Lausanne, Faculté des HEC, DEEP.

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