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Vicious and Virtuous Circles - the Political Economy of Unemployment in Interwar UK and USA

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Author Info
Ruthira Naraidoo () (Keele University, Centre for Economic Research and School of Economic and Management Studies)
Patrick Minford () (Cardiff Business School, Aberconway Building, Cardiff University)
Kent Matthews () (Cardiff Business School, Aberconway Building, Cardiff University)

Additional information is available for the following registered author(s):

Abstract

This paper develops a political economy model of multiple unemployment equilibria to provide a theory of an endogenous natural rate of unemployment. This model is applied to the UK and the US interwar period which is remembered as the decade of mass unemployment. The theory here sees the natural rate and the associated equilibrium path of unemployment as a reaction to shocks (mainly demand in nature) and the institutional structure of the economy. The channel through which these two forces feed on each other is a political economy process whereby voters with limited information on the natural rate react to shocks by demanding more or less social protection. The reduced form results obtained confirm a pattern of unemployment behaviour in which unemployment moves between high and low equilibria in response to shocks.

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Publisher Info
Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2006/08.

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Length: 37 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:kee:kerpuk:2006/08

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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

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Related research
Keywords: Equilibrium unemployment political economy ‘‘vicious’’ and ‘‘virtuous’’ circles bootstrapping forecasting.

Other versions of this item:

Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation
P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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    Other versions:
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    Other versions:
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