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Unemployment Risk

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  • Michael T. Kiley

Abstract

Fluctuations in upside risks to unemployment over the medium term are examined using quantile regressions. U.S. experience reveals an elevated risk of large increases in unemployment when inflation or credit growth is high and when the unemployment rate is low. Inflation was a significant contributor to unemployment risk in the 1970s and early 1980s, and fluctuations in credit have contributed importantly to unemployment risk since the 1980s. Fluctuations in upside risk to unemployment are larger than fluctuations in the median outlook or downside risk to unemployment. Accounting for inflation and the state of the business cycle is important for understanding the role of financial conditions in shaping unemployment risk. The analysis suggests that fluctuations in near-term risks to unemployment decreased after 1984 because inflation stabilized, but fluctuations in medium-term risks increased owing to the large swings in credit in recent decades.

Suggested Citation

  • Michael T. Kiley, 2018. "Unemployment Risk," Finance and Economics Discussion Series 2018-067, Board of Governors of the Federal Reserve System (U.S.), revised 28 Sep 2018.
  • Handle: RePEc:fip:fedgfe:2018-67
    DOI: 10.17016/FEDS.2018.067
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    File URL: https://www.federalreserve.gov/econres/feds/files/2018067pap.pdf
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    References listed on IDEAS

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    1. Tobias Adrian & Fernando M. Duarte, 2016. "Financial vulnerability and monetary policy," Staff Reports 804, Federal Reserve Bank of New York, revised 01 Feb 2017.
    2. Sichel, Daniel E, 1993. "Business Cycle Asymmetry: A Deeper Look," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 224-236, April.
    3. Tobias Adrian & Federico Grinberg & Nellie Liang & Sheheryar Malik, 2018. "The Term Structure of Growth-at-Risk," IMF Working Papers 18/180, International Monetary Fund.
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    Cited by:

    1. Dave Reifschneider & William Wascher & David Wilcox, 2015. "Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(1), pages 71-109, May.

    More about this item

    Keywords

    Credit; GDP at risk; Risk management;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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