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How well does the Aggregate Demand - Aggregate Supply framework explain unemployment fluctuations? A France - United States Comparison

  • Yann Algan
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    This paper reviews the ability of the traditional aggregate demand–aggregate supply framework to explain the unemployment fluctuations of the last three decades. A structural VAR model for the growth rates of labor productivity, inflation and unemployment is estimated on American and French data. By using long-run identifying restrictions, unemployment fluctuations are associated with conventional aggregate demand and aggregate supply shocks and with a supplementary residual innovation. One key finding is that the residual shock is far more significant in France than in the United States. The traditional macroeconomic synthesis proves then to be well suited for the American labor market while it leaves unexplained a large part of the French unemployment drift. This result questions the conventional prior that the heterogeneity in unemployment experiences lies in the magnitude of aggregate shocks or in their propagation mechanisms and calls for alternative explanations.

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    File URL: http://spire.sciencespo.fr/hdl:/2441/8886/resources/1933.pdf
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    Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/8886.

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    Date of creation: Aug 2000
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    Publication status: Published in 8th World Congress of the Econometric Society, Seattle, Washington, August 2000, pp.1-29
    Handle: RePEc:spo:wpmain:info:hdl:2441/8886
    Contact details of provider: Web page: http://www.sciencespo.fr/

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