Unemployment persistence: Does the size of the shock matter?
AbstractOne 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, the authors use a statistical analysis based on switching regression models and nonparametric density estimation techniques to identify the dates of infrequent changes in the mean of the unemployment rate series of 17 countries. They find that in most countries, unemployment persistence is small once the (infrequently) changing mean rate has been removed. The changes in the mean rate coincide with large annual changes in actual unemployment. The conclusion is that the observed persistence in unemployment appears to be consistent with unemployment hysteresis arising after large shocks to unemployment, but not after small changes. The result poses a challenge to theory, since most existing hysteresis models do not have this non-linearity property.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 50.
Date of creation: Jun 1996
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Other versions of this item:
- Marco Bianchi & Gylfi Zoega, 1998. "Unemployment persistence: does the size of the shock matter?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(3), pages 283-304.
- Bianchi, Marco & Zoega, Gylfi, 1995. "Unemployment Persistence : Does the Size of the Shock Matter ?," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1995014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Zoega, Gylfi, 1994. "Unemployment Persistence: Does the Size of the Shock Matter?," CEPR Discussion Papers 1082, C.E.P.R. Discussion Papers.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
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- 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.
- Danny Quah & Shaun Vahey, 1995.
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