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Vicious and virtuous circles -- The political economy of unemployment in interwar UK and USA

  • Matthews, Kent
  • Minford, Patrick
  • Naraidoo, Ruthira

This paper develops a political economy model of multiple unemployment equilibria to provide a theory of an endogenous natural rate of unemployment for the UK and the US interwar period. The theory here sees the natural rate and the associated path of unemployment as a reaction to mainly demand shocks 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 confirm a pattern of unemployment behaviour in which unemployment moves between high and low equilibria in response to shocks.

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Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 24 (2008)
Issue (Month): 3 (September)
Pages: 605-614

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Handle: RePEc:eee:poleco:v:24:y:2008:i:3:p:605-614
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505544

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