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Markov switching in disaggregate unemployment rates

  • Chinhui Juhn

    ()

    (Department of Economics, Univesity of Houston, Houston, TX 77204, cjuhn@uh.edu.)

  • Simon Potter

    ()

    (Domestic Research, Federal Reserve Bank of New York, New York, NY 10045, simon.potter@ny.frb.org.)

  • Marcelle Chauvet

    ()

    (Department of Economics University of California, Riverside, CA 92521, chauvet@mail.ucr.edu.)

We develop a dynamic factor model with Markov switching to examine secular and business cycle fluctuations in the U.S. unemployment rates. We extract the common dynamics amongst unemployment rates disaggregated for 7 age groups. The framework allows analysis of the contribution of demographic factors to secular changes in unemployment rates. In addition, it allows examination of the separate contribution of changes due to asymmetric business cycle fluctuations. We find strong evidence in favor of the common factor and of the switching between high and low unemployment rate regimes. We also find that demographic adjustments can account for a great deal of secular changes in the unemployment rates, particularly the abrupt increase in the 1970s and 1980s and the subsequent decrease in the last 18 years.

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Article provided by Springer in its journal Empirical Economics.

Volume (Year): 27 (2002)
Issue (Month): 2 ()
Pages: 205-232

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Handle: RePEc:spr:empeco:v:27:y:2002:i:2:p:205-232
Note: Received: December 2000/Final Version Received: June 2001
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