Recessions and the Trend in the US Unemployment Rate

Kurt Lunsford

Economic Commentary, 2020, vol. 2021, issue 01, 8

Abstract: The unemployment rate in the United States falls slowly in expansions, and it may not reach its previous low point before the next recession begins. Based on this feature, I document that the frequent recessions prior to 1983 are associated with an upward trend in the unemployment rate. In contrast, the long expansions beginning in 1983 are associated with a downward trend. I then estimate a two-variable vector autoregression (VAR) that includes the unemployment rate and a recession indicator. Long-horizon forecasts from this VAR conditioned on no future recessions project that the unemployment rate will go to 3.6 percent after a long period with no recessions.

Keywords: COVID-19; unemployment (search for similar items in EconPapers)
Date: 2020
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DOI: 10.26509/frbc-ec-202101

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