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Unemployment persistence: does the size of the shock matter?
Author(s) -
Bianchi Marco,
Zoega Gylfi
Publication year - 1998
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/(sici)1099-1255(199805/06)13:3<283::aid-jae469>3.0.co;2-s
Subject(s) - stylized fact , economics , unemployment , persistence (discontinuity) , econometrics , variance (accounting) , markov chain , shock (circulatory) , unemployment rate , natural rate of unemployment , statistics , keynesian economics , mathematics , macroeconomics , medicine , geotechnical engineering , accounting , engineering
One of the stylized facts of unemployment is that shifts in its mean rate between decades and half‐decades account for most of its variance. In this paper, we use a statistical analysis based on Markov switching regression models to identify the dates of infrequent changes in the mean of the unemployment rate series of fifteen countries. We find that in most countries, unemployment persistence is much reduced once the (infrequently) changing mean rate, induced by large shocks to unemployment, has been removed. We conclude that the observed persistence in unemployment appears to be consistent with multiple equilibria models and models with an endogeneous natural rate. © 1998 John Wiley & Sons, Ltd.