Unemployment, Investment and Global Expected Returns: A Panel FAVAR Approach
AbstractWe consider the hypothesis that a common factor, global expected returns, drives unemployment and investment in 21 OECD countries over the period 1960-2002. We investigate this hypothesis using a panel-factor augmented-vector autoregression (FAVAR). We first estimate the common factors of unemployment and investment by principal components and show that the first principal component of unemployment is almost identical to that of investment and that they both show the pattern one would expect of a rate of return as indicated by long interest rates. We then estimate panel FAVARs to measure the dynamic impact of the global factors. Investment appears to drive unemployment and – allowing for a moving natural rate of unemployment driven by the global factor – produces much faster adjustment by unemployment.
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Bibliographic InfoPaper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 0524.
Date of creation: Nov 2005
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Find related papers by JEL classification:
- J1 - Labor and Demographic Economics - - Demographic Economics
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
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