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Hysteresis in Unemployment and Jobless Recoveries

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  • Dmitry Plotnikov

    (University Of California, Los Angeles)

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    Abstract

    This paper develops and estimates a general equilibrium rational expectations model with search and multiple equilibria where aggregate shocks have a permanent effect on the unemployment rate. If agents' wealth decreases, the unemployment rate increases for a potentially indefinite period. This makes unemployment rate dynamics path dependent as in Blanchard and Summers (1987). I argue that this feature explains the persistence of the unemployment rate in the U.S. after the Great Recession and over the entire postwar period.

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    File URL: http://www.economicdynamics.org/meetpapers/2013/paper_208.pdf
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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 208.

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    Date of creation: 2013
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    Handle: RePEc:red:sed013:208

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