Unemployment and Inflation Regimes
AbstractIn this paper we study 2-state Markov switching VAR models of monthly unemployment and inflation for three countries: Sweden, United Kingdom, and the United States. The primary purpose is to examine if periods of low inflation are associated with high or low unemployment volatility. We find that MS-VAR models seem to provide a better description of the data than single regime VARs and need fewer lags to account for serial correlation. To interpret the regimes the empirical results are compared with the predictions from a version of Rogoff's (1985) model of monetary policy. We find that both the theoretical and empirical results suggest that an increase in central bank "conservativeness" can be associated with either a higher or a lower variance in unemployment. In the U.S. case we find that the variance of unemployment is lower in the low inflation regime than in hte high inflation regime, while the Swedish and the U.K. cases suggest that unemployment variability is higher in the low inflation regime.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 107.
Length: 43 pages
Date of creation: 01 May 2000
Date of revision:
Publication status: Published in Studies in Non-Linear Dynamics and Econometrics , 2006.
Cointegration; Monetary policy; Phillips curve; Regime switching; Unemployment volatility;
Other versions of this item:
- Anders Vredin & Anders Warne, 2000. "Unemployment and Inflation Regimes," Econometric Society World Congress 2000 Contributed Papers 0984, Econometric Society.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-10-09 (All new papers)
- NEP-CBA-2001-10-09 (Central Banking)
- NEP-LAB-2001-10-09 (Labour Economics)
- NEP-MON-2001-10-09 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
- Hamilton, James D., 1996. "Specification testing in Markov-switching time-series models," Journal of Econometrics, Elsevier, vol. 70(1), pages 127-157, January.
- Jacobson, Tor & Vredin, Anders & Warne, Anders, 1997. "Common trends and hysteresis in Scandinavian unemployment," European Economic Review, Elsevier, vol. 41(9), pages 1781-1816, December.
- Demertzis, Maria & Andrew Hughes Hallett, 2003.
"Central Bank Transparency in Theory and Practice,"
Royal Economic Society Annual Conference 2003
56, Royal Economic Society.
- M. Demertzis & A. Hughes Hallet, 2002. "Central Bank Transparency in Theory and Practice," WO Research Memoranda (discontinued) 704, Netherlands Central Bank, Research Department.
- Demertzis, Maria & Hughes Hallett, Andrew, 2002. "Central Bank Transparency in Theory and Practice," CEPR Discussion Papers 3639, C.E.P.R. Discussion Papers.
- Maria Demertzis & Andrew Hughes Hallet, 2003. "Central Bank Transparency in Theory and Practice," DNB Staff Reports (discontinued) 105, Netherlands Central Bank.
- Maria Demertzis & Andrew Hughes Hallett, 2004. "Central bank transparency in theory and practice," Money Macro and Finance (MMF) Research Group Conference 2003 23, Money Macro and Finance Research Group.
- Siem Jan Koopman & Marius Ooms & Irma Hindrayanto, 2009.
"Periodic Unobserved Cycles in Seasonal Time Series with an Application to US Unemployment,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 71(5), pages 683-713, October.
- Siem Jan Koopman & Marius Ooms & Irma Hindrayanto, 2006. "Periodic Unobserved Cycles in Seasonal Time Series with an Application to US Unemployment," Tinbergen Institute Discussion Papers 06-101/4, Tinbergen Institute.
- Chinhui Juhn & Simon Potter & Marcelle Chauvet, 2002.
"Markov switching in disaggregate unemployment rates,"
Springer, vol. 27(2), pages 205-232.
- Marcelle Chauvet & Chinhui Juhn & Simon Potter, 2001. "Markov switching in disaggregate unemployment rates," Staff Reports 132, Federal Reserve Bank of New York.
- Ahdi Ajmi & Adnen Ben Nasr & Mohamed Boutahar, 2008. "Seasonal Nonlinear Long Memory Model for the US Inflation Rates," Computational Economics, Society for Computational Economics, vol. 31(3), pages 243-254, April.
- Hindrayanto, Irma & Koopman, Siem Jan & Ooms, Marius, 2010. "Exact maximum likelihood estimation for non-stationary periodic time series models," Computational Statistics & Data Analysis, Elsevier, vol. 54(11), pages 2641-2654, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lena Löfgren).
If references are entirely missing, you can add them using this form.