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Unemployment persistence: does the size of the shock matter?

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  • Marco Bianchi

    (Bank of England, Monetary Analysis, Div. 2, Ho. 4, Threadneedle Street, London, EC2R 8AH, UK)

  • Gylfi Zoega

    (Birkbeck College, Department of Economics, 7-15 Gresse Street, London, W1P 2LL, UK)

Abstract

One of the stylized facts of unemployment is that shifts in its mean rate between decades and half-decades account for most of its variance. In this paper, we use a statistical analysis based on Markov switching regression models to identify the dates of infrequent changes in the mean of the unemployment rate series of fifteen countries. We find that in most countries, unemployment persistence is much reduced once the (infrequently) changing mean rate, induced by large shocks to unemployment, has been removed. We conclude that the observed persistence in unemployment appears to be consistent with multiple equilibria models and models with an endogeneous natural rate. © 1998 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 13 (1998)
Issue (Month): 3 ()
Pages: 283-304

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Handle: RePEc:jae:japmet:v:13:y:1998:i:3:p:283-304

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  1. Danny Quah & Danny Quah & Shaun P. Vahey, 1995. "Measuring Core Inflation," CEP Discussion Papers dp0254, Centre for Economic Performance, LSE.
  2. Quah, Danny, 1995. "Measuring Core Inflation," CEPR Discussion Papers 1153, C.E.P.R. Discussion Papers.
  3. Francis Breedon & Ian Twinn, 1995. "Valuation of underwriting agreements for UK rights issues: evidence from the traded option market," Bank of England working papers 39, Bank of England.
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