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New Evidenceon Cyclical and Structural Sources of Unemployment

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  • Jinzhu Chen
  • Bharat Trehan
  • Prakash Kannan
  • Prakash Loungani

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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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/106.

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Length: 42
Date of creation: 01 May 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/106

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Keywords: Unemployment; Stock markets; Economic recession; External shocks; Global Financial Crisis 2008-2009; unemployment rate; long-term unemployment; long-term unemployment rate; employment; unemployment rates; structural unemployment; duration of unemployment; unemployed; unemployment duration; average duration of unemployment; aggregate unemployment; short-term unemployment; cyclical unemployment; long term unemployment; unemployment spells; unemployment increases; high unemployment; employment growth; rate of unemployment; labor demand; unemployment durations; total unemployment; unemployment forecast; natural rate of unemployment; unemployment declines; equilibrium unemployment; unemployed workers; sectoral employment; beveridge curve; unemployment problem; employment conditions; unemployment outcomes; average unemployment; equilibrium unemployment rates; structural employment; cyclical employment; employment trends; persistent unemployment; employment growth rates; net employment;

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Cited by:
  1. Giovanni Gallipoli & Gianluigi Pelloni, 2013. "Macroeconomic Effects of Job Reallocations: A Survey," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 5(2), pages 127-176, December.
  2. 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.
  3. Kang, Wensheng & Lee, Kiseok & Ratti, Ronald A., 2014. "Economic policy uncertainty and firm-level investment," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 42-53.
  4. Marianna Riggi, 2012. "Capital destruction, jobless recoveries, and the discipline device role of unemployment," Temi di discussione (Economic working papers) 871, Bank of Italy, Economic Research and International Relations Area.
  5. Mariya Mileva, 2013. "Optimal Monetary Policy in Response to Shifts in the Beveridge Curve," Kiel Working Papers 1823, Kiel Institute for the World Economy.
  6. Giovanni Gallipoli & Gianluigi Pelloni, 2008. "Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature," Working Paper Series 27-08, The Rimini Centre for Economic Analysis, revised Jan 2008.

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