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Hysteresis in Unemployment and Jobless Recoveries

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  • Dmitry Plotnikov

    (University Of California, Los Angeles)

Abstract

This paper develops and estimates a general equilibrium rational expectations model with search and multiple equilibria where aggregate shocks have a permanent effect on the unemployment rate. If agents' wealth decreases, the unemployment rate increases for a potentially indefinite period. This makes unemployment rate dynamics path dependent as in Blanchard and Summers (1987). I argue that this feature explains the persistence of the unemployment rate in the U.S. after the Great Recession and over the entire postwar period.

Suggested Citation

  • Dmitry Plotnikov, 2013. "Hysteresis in Unemployment and Jobless Recoveries," 2013 Meeting Papers 208, Society for Economic Dynamics.
  • Handle: RePEc:red:sed013:208
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    References listed on IDEAS

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