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What goes up sometimes stays up: shocks and institutions as determinants of unemployment persistence
Author(s) -
Amisano Gianni,
Serati Massimiliano
Publication year - 2003
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/1467-9485.5004005
Subject(s) - unemployment , economics , hysteresis , persistence (discontinuity) , identification (biology) , bayesian vector autoregression , bayesian probability , demand shock , structural vector autoregression , labour economics , monetary economics , econometrics , macroeconomics , monetary policy , physics , botany , geotechnical engineering , quantum mechanics , artificial intelligence , biology , computer science , engineering
We analyse the determinants of unemployment persistence in four OECD countries by estimating a structural Bayesian VAR with an informative prior based on an insiders/outsiders model. We explicitly insert unemployment benefits and labour taxes so that our identification is not affected by the Faust and Leeper (1997) critique. We find widespread hysteresis: demand shocks play a dominant role in explaining unemployment also in the medium‐run. Moreover real wages have low sensitivity to cyclical fluctuations and to labour market disequilibria. Our results emphasise the real power of the unions and their interactions with structural shocks and other institutions as crucial determinants of hysteresis.