Hysteresis in Unemployment and Jobless Recoveries

Dmitry Plotnikov
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Dmitry Plotnikov: University Of California, Los Angeles

No 208, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper develops and estimates a general equilibrium rational expectations model with search and multiple equilibria where aggregate shocks have a permanent effect on the unemployment rate. If agents' wealth decreases, the unemployment rate increases for a potentially indefinite period. This makes unemployment rate dynamics path dependent as in Blanchard and Summers (1987). I argue that this feature explains the persistence of the unemployment rate in the U.S. after the Great Recession and over the entire postwar period.

Date: 2013
New Economics Papers: this item is included in nep-dge and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:208

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