What goes up sometimes stays up: Shocks and Institutions as Determinants of Unemployment Persistence
We analyse the determinants of unemployment persistence in four OECDcountries byestimating a structural Bayesian VAR with an informative priorbased on an insiders/outsiders model. We explicitly insert unemployment ben-efits and labour taxes so that our identification is not affected by the Faust andLeeper (1997) critique. We find widespread hysteresis: demand shocks play adominant role in explaining unemployment also in the medium-run. Moreoverreal wages have low sensitivity to cyclical fluctuations and to labour marketdisequilibria. Our results emphasise the real power of the unions and their in-teractions with structural shocks and other institutions as crucial determinantsof hysteresis.
|Date of creation:||18 Nov 2002|
|Contact details of provider:|| Postal: Gustav Mahlerplein 117, 1082 MS Amsterdam|
Phone: +31 (0)20 598 4580
Web page: http://www.tinbergen.nl/
More information through EDIRC