Explaining unemployment: sectoral vs aggregate shocks

Prakash Loungani and Bharat Trehan ()

Economic Review, 1997, 3-15

Abstract: We include a stock market-based measure of sectoral shocks in a small VAR to examine the role played by these shocks in explaining the behavior of the unemployment rate. Sectoral shocks explain a significant proportion of the variation in the unemployment rate - especially the long-duration unemployment rate - even though other kinds of shocks (such as shocks to monetary policy, defense expenditures, and oil prices) are allowed to affect the unemployment rate. A historical decomposition reveals that recession, and they explain only a modest part of the rise in unemployment over the 1990 recession.

Keywords: Vector autoregression; Unemployment; Labor supply (search for similar items in EconPapers)
Date: 1997
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