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New Evidenceon Cyclical and Structural Sources of Unemployment

  • Jinzhu Chen
  • Bharat Trehan
  • Prakash Kannan
  • Prakash Loungani

We provide cross-country evidence on the relative importance of cyclical and structural factors in explaining unemployment, including the sharp rise in U.S. long-term unemployment during the Great Recession of 2007-09. About 75% of the forecast error variance of unemployment is accounted for by cyclical factors-real GDP changes (?Okun‘s Law?), monetary and fiscal policies, and the uncertainty effects emphasized by Bloom (2009). Structural factors, which we measure using the dispersion of industry-level stock returns, account for the remaining 25 percent. For U.S. long-term unemployment the split between cyclical and structural factors is closer to 60-40, including during the Great Recession.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/106.

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Length: 42
Date of creation: 01 May 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/106
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