MODELLING A REGIME-SHIFTING BEVERIDGE CURVE

Richard Dutu, Mark Holmes () and Brian Silverstone

Bulletin of Economic Research, 2016, vol. 68, issue 1, 90-104

Abstract: type="main">

This paper offers new insights into Beveridge curve analysis by modelling the unemployment–vacancy rate relationship within a Markov regime-switching environment in which the probabilities of curve-shifting are determined endogenously by shift factors. Shift factors include structural factors such as labour market participation and net migration, while cyclical variables include GDP growth, the real rate of interest, and labour productivity. This approach enables us to estimate regime-specific parameters and to assess the role played by these factors in influencing the transition probabilities of switching between regimes. Using New Zealand data, we show that increases in the participation rate have shifted the Beveridge curve inward, while increases in net migration have shifted the curve outward.

Date: 2016
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