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Unemployment duration, Fiscal and monetary policies, and the output gap: How do the quantile relationships look like?

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  • Zamanzadeh, Akbar
  • Chan, Marc K.
  • Ehsani, Mohammad Ali
  • Ganjali, Mojtaba

Abstract

We use country-level panel data on average unemployment duration (AvgUD) to explore how the conditional distribution of AvgUD varies with primary fiscal balance (fiscal policy), short-term interest rate (monetary policy), and the state of the business cycle (output gap). We obtain the quantile estimates via a Bayesian quantile mixed effects model, which has so far received limited attention in economics. Our results reveal rich heterogeneity in both the sign and strength of these associations at different quantiles of AvgUD, in different gender and age groups, and in some transition economies that have markedly different labour markets. A higher fiscal balance/surplus is associated with higher middle-upper quantiles of AvgUD among prime-age and old-age men, whereas the empirical association is weak at all quantiles of AvgUD among young men and women. The association between quantiles of AvgUD and fiscal and monetary policies tends to be weaker among women than men. A better state of the business cycle is associated with a lower AvgUD at all quantiles among young men and women.

Suggested Citation

  • Zamanzadeh, Akbar & Chan, Marc K. & Ehsani, Mohammad Ali & Ganjali, Mojtaba, 2020. "Unemployment duration, Fiscal and monetary policies, and the output gap: How do the quantile relationships look like?," Economic Modelling, Elsevier, vol. 91(C), pages 613-632.
  • Handle: RePEc:eee:ecmode:v:91:y:2020:i:c:p:613-632
    DOI: 10.1016/j.econmod.2019.12.003
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    More about this item

    Keywords

    unemployment duration; Fiscal and monetary policies; Output gap; Bayesian quantile regression; Mixed effects panel data; MCMC;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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