Hysteresis in Unemployment: Evidence from OECD Estimates of the Natural Rate

Laurence Ball and Joern Onken

No 29343, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the dynamics of unemployment (u) and its natural rate (u*), with u* measured by real-time estimates for 29 countries from the OECD. We find strong evidence of hysteresis: an innovation in u causes u* to change in the same direction, and therefore has permanent effects. For our baseline specification, a one percentage point deviation of u from u* for one year has a long-run effect of 0.16 points on both variables. When we allow asymmetry, we find, perhaps surprisingly, that decreases in u have larger long-run effects than increases in u.

JEL-codes: E24 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-lma and nep-mac
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Published as Laurence Ball & Joern Onken, 2022. "Hysteresis in unemployment: Evidence from OECD estimates of the natural rate," International Finance, vol 25(3), pages 268-284.

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Related works:
Journal Article: Hysteresis in unemployment: Evidence from OECD estimates of the natural rate (2022)
Working Paper: Hysteresis in unemployment: evidence from OECD estimates of the natural rate (2021)
Working Paper: Hysteresis in Unemployment: Evidence from OECD Estimates of the Natural Rate (2021)
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