Detecting unemployment hysteresis: A simultaneous unobserved components model with Markov switching

Sabine Klinger () and Enzo Weber

Economics Letters, 2016, vol. 144, issue C, 115-118

Abstract: We construct a new Markov-switching unobserved components framework for analysing hysteresis effects, featuring trend-cycle decomposition, identification of spillovers between the components and asymmetry over the business cycle. The decades-long upward trend in German unemployment is fully explained by hysteresis. The Great Recession was well absorbed because both hysteresis and structural unemployment were substantially reduced after institutional reforms. In contrast, U.S. unemployment was not driven by hysteresis effects.

Keywords: Hysteresis; Structural unemployment; Business cycle; Unobserved components; Markov switching (search for similar items in EconPapers)
JEL-codes: C32 E24 E32 J64 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Working Paper: Detecting unemployment hysteresis: a simultaneous unobserved components model with Markov switching (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:144:y:2016:i:c:p:115-118

DOI: 10.1016/j.econlet.2016.04.027

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