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Business cycles and the labour market can theory fit the facts?

  • Stephen Millard
  • Andrew Scott
  • Marianne Sensier

The performance of six alternative models in accounting for UK labour market behaviour over the business cycle is examined. Models are assessed in terms of their ability to mimic actual cycle correlations and volatility, their success in replicating persistence, and their success in modelling asymmetries between expansions and downturns. Most are found to be successful in accounting for co-movements of key variables and in explaining asymmetries. But the models underpredict the volatility of employment and unemployment, produce too high a correlation between wages and employment, and do not capture the slow adjustment exhibited in the data.

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Paper provided by Bank of England in its series Bank of England working papers with number 93.

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Date of creation: Mar 1999
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Handle: RePEc:boe:boeewp:93
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