Cyclical unemployment: sectoral shifts or aggregate disturbances? A vector autoregression approach

Tony Caporale, K. Doroodian and M. R. M. Abeyratne

Applied Economics Letters, 1996, vol. 3, issue 2, 127-130

Abstract: Using a multivariate vector autoregression (VAR) model, this paper investigates if sectoral shifts, inflation uncertainty, or demand shocks are the primary cause of unemployment fluctuations in the postwar US economy. A sectoral shifts variable (cross-section volatility), an ARCH measure of inflation uncertainty, and three demand shocks variables (monetary base growth rate, interest rates and inflation rates) are incorporated in a VAR model. Our major findings are: cross-section volatility Granger causes unemployment; the sectoral shifts variable and inflation uncertainty explain a small amount, while demand shocks variables explain a substantial amount of the variation in unemployment.

Date: 1996
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DOI: 10.1080/135048596356852

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