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What goes up sometimes stays up: Shocks and Institutions as Determinants of Unemployment Persistence

Listed author(s):
  • Gianni Amisano


    (University of Brescia, Italy)

  • Massimiliano Serati


    (Cattaneo University, Italy)

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.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-116/4.

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Date of creation: 18 Nov 2002
Handle: RePEc:tin:wpaper:20020116
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