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Unemployment persistence: Does the size of the shock matter?

Author

Listed:
  • Marco Bianchi
  • Gylfi Zoega

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, the authors use a statistical analysis based on switching regression models and nonparametric density estimation techniques to identify the dates of infrequent changes in the mean of the unemployment rate series of 17 countries. They find that in most countries, unemployment persistence is small once the (infrequently) changing mean rate has been removed. The changes in the mean rate coincide with large annual changes in actual unemployment. The conclusion is that the observed persistence in unemployment appears to be consistent with unemployment hysteresis arising after large shocks to unemployment, but not after small changes. The result poses a challenge to theory, since most existing hysteresis models do not have this non-linearity property.

Suggested Citation

  • Marco Bianchi & Gylfi Zoega, 1996. "Unemployment persistence: Does the size of the shock matter?," Bank of England working papers 50, Bank of England.
  • Handle: RePEc:boe:boeewp:50
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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1996/wp50.pdf
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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. 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.
    3. Andy Haldane & Bennett McCallum & Chris Salmon, 1996. "Base Money Rules in the UK," Bank of England working papers 45, Bank of England.
    4. Roger Beaton & Paul Fisher, 1995. "The Construction of RPIY," Bank of England working papers 28, Bank of England.
    5. Joanna Paisley & Chris Salmon, 1995. "How Cyclical is the PSBR?," Bank of England working papers 34, Bank of England.
    Full references (including those not matched with items on IDEAS)

    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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