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Unemployment persistence: does the size of the shock matter?

Author

Listed:
  • Marco Bianchi

    (Bank of England, Monetary Analysis, Div. 2, Ho. 4, Threadneedle Street, London, EC2R 8AH, UK)

  • Gylfi Zoega

    (Birkbeck College, Department of Economics, 7-15 Gresse Street, London, W1P 2LL, UK)

Abstract

One of the stylized facts of unemployment is that shifts in its mean rate between decades and half-decades account for most of its variance. In this paper, we use a statistical analysis based on Markov switching regression models to identify the dates of infrequent changes in the mean of the unemployment rate series of fifteen countries. We find that in most countries, unemployment persistence is much reduced once the (infrequently) changing mean rate, induced by large shocks to unemployment, has been removed. We conclude that the observed persistence in unemployment appears to be consistent with multiple equilibria models and models with an endogeneous natural rate. © 1998 John Wiley & Sons, Ltd.

Suggested Citation

  • Marco Bianchi & Gylfi Zoega, 1998. "Unemployment persistence: does the size of the shock matter?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(3), pages 283-304.
  • Handle: RePEc:jae:japmet:v:13:y:1998:i:3:p:283-304
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    File URL: http://qed.econ.queensu.ca:80/jae/1998-v13.3/
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    References listed on IDEAS

    as
    1. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    2. Roger Beaton & Paul Fisher, 1995. "The Construction of RPIY," Bank of England working papers 28, Bank of England.
    3. Joanna Paisley & Chris Salmon, 1995. "How Cyclical is the PSBR?," Bank of England working papers 34, Bank of England.
    4. Francis Breedon & Ian Twinn, 1995. "Valuation of underwriting agreements for UK rights issues: evidence from the traded option market," Bank of England working papers 39, Bank of England.
    5. Andy Haldane & Bennett McCallum & Chris Salmon, 1996. "Base Money Rules in the UK," Bank of England working papers 45, Bank of England.
    6. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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