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Cyclical unemployment: sectoral shifts or aggregate disturbances? A vector autoregression approach

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  • Tony Caporale
  • K. Doroodian
  • M. R. M. Abeyratne

Abstract

Using a multivariate vector autoregression (VAR) model, this paper investigates if sectoral shifts, inflation uncertainty, or demand shocks are the primary cause of unemployment fluctuations in the postwar US economy. A sectoral shifts variable (cross-section volatility), an ARCH measure of inflation uncertainty, and three demand shocks variables (monetary base growth rate, interest rates and inflation rates) are incorporated in a VAR model. Our major findings are: cross-section volatility Granger causes unemployment; the sectoral shifts variable and inflation uncertainty explain a small amount, while demand shocks variables explain a substantial amount of the variation in unemployment.

Suggested Citation

  • Tony Caporale & K. Doroodian & M. R. M. Abeyratne, 1996. "Cyclical unemployment: sectoral shifts or aggregate disturbances? A vector autoregression approach," Applied Economics Letters, Taylor & Francis Journals, vol. 3(2), pages 127-130.
    • Handle: RePEc:taf:apeclt:v:3:y:1996:i:2:p:127-130
    DOI: 10.1080/135048596356852
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    References listed on IDEAS

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    1. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
    2. James Tobin, 1980. "Stabilization Policy Ten Years After," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 19-90.
    3. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-522, June.
    4. Loungani, Prakash & Rush, Mark & Tave, William, 1990. "Stock market dispersion and unemployment," Journal of Monetary Economics, Elsevier, vol. 25(3), pages 367-388, June.
    5. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    6. Bent Hansen, 1970. "Excess Demand, Unemployment, Vacancies, and Wages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(1), pages 1-23.
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    Cited by:

    1. Sonja Sheikh & Wolfgang Pauer, 1999. "Strukturelle Arbeitslosigkeit in ausgewählten Ländern der Europäischen Union unter besonderer Berücksichtigung der Mismatch-Komponente," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 68(3), pages 424-448.
    2. Giovanni Gallipoli & Gianluigi Pelloni, 2013. "Macroeconomic Effects of Job Reallocations: A Survey," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 5(2), pages 127-176, December.
    3. Dimitrios Bakas & Theodore Panagiotidis & Gianluigi Pelloni, 2017. "Regional And Sectoral Evidence Of The Macroeconomic Effects Of Labor Reallocation: A Panel Data Analysis," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 501-526, January.
    4. Kurt Kratena, 2000. "Sectoral shifts and unemployment persistence," Applied Economics, Taylor & Francis Journals, vol. 32(10), pages 1233-1240.
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    6. Bakas, Dimitrios & Panagiotidis, Theodore & Pelloni, Gianluigi, 2016. "On the significance of labour reallocation for European unemployment: Evidence from a panel of 15 countries," Journal of Empirical Finance, Elsevier, vol. 39(PB), pages 229-240.
    7. Giovanni Gallipoli & Gianluigi Pelloni, 2008. "Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature," Working Paper series 27_08, Rimini Centre for Economic Analysis.

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