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New evidence on cyclical and structural sources of unemployment

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


    (Federal Reserve Bank of San Francisco)

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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Article provided by Federal Reserve Bank of San Francisco in its journal Proceedings.

Volume (Year): (2012)
Issue (Month): March ()
Pages: 1-23

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Handle: RePEc:fip:fedfpr:y:2012:i:mar16:x:1
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