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New evidence on cyclical and structural sources of unemployment

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  • Zinzhu Chen
  • Prakash Kannan
  • Prakash Loungani
  • Bharat Trehan

Abstract

We provide cross-country evidence on the relative importance of cyclical and structural factors in explaining unemployment, including the sharp rise in U.S. long-term unemployment during the Great Recession of 2007-09. About 75% of the forecast error variance of unemployment is accounted for by cyclical factors—real GDP changes (“Okun’s Law”), monetary and fiscal policies, and the uncertainty effects emphasized by Bloom (2009). Structural factors, which we measure using the dispersion of industry-level stock returns, account for the remaining 25 percent. For U.S. long-term unemployment the split between cyclical and structural factors is closer to 60-40, including during the Great Recession.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2011-17.

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Date of creation: 2011
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Handle: RePEc:fip:fedfwp:2011-17

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Keywords: Unemployment;

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Citations

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Cited by:
  1. Giovanni Gallipoli & Gianluigi Pelloni, 2013. "Macroeconomic Effects of Job Reallocations: A Survey," Working Paper Series, The Rimini Centre for Economic Analysis 37_13, The Rimini Centre for Economic Analysis.
  2. Giovanni Gallipoli & Gianluigi Pelloni, 2008. "Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature," Working Paper Series, The Rimini Centre for Economic Analysis 27-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
  3. Menzie Chinn & Laurent Ferrara & Valérie Mignon, 2013. "Post-Recession US Employment through the Lens of a Non-Linear Okun's Law," Working Papers 2013-13, CEPII research center.
  4. Kang, Wensheng & Lee, Kiseok & Ratti, Ronald A., 2013. "Economic Policy Uncertainty and Firm-Level Investment," MPRA Paper 51277, University Library of Munich, Germany.
  5. Marianna Riggi, 2012. "Capital destruction, jobless recoveries, and the discipline device role of unemployment," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 871, Bank of Italy, Economic Research and International Relations Area.
  6. Mariya Mileva, 2013. "Optimal Monetary Policy in Response to Shifts in the Beveridge Curve," Kiel Working Papers 1823, Kiel Institute for the World Economy.

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