Markov switching in disaggregate unemployment rates

Chinhui Juhn (), Simon Potter and Marcelle Chauvet

Empirical Economics, 2002, vol. 27, issue 2, 205-232

Abstract: We develop a dynamic factor model with Markov switching to examine secular and business cycle fluctuations in the U.S. unemployment rates. We extract the common dynamics amongst unemployment rates disaggregated for 7 age groups. The framework allows analysis of the contribution of demographic factors to secular changes in unemployment rates. In addition, it allows examination of the separate contribution of changes due to asymmetric business cycle fluctuations. We find strong evidence in favor of the common factor and of the switching between high and low unemployment rate regimes. We also find that demographic adjustments can account for a great deal of secular changes in the unemployment rates, particularly the abrupt increase in the 1970s and 1980s and the subsequent decrease in the last 18 years.

Keywords: Markov switching; unemployment; common factor; asymmetries; business cycle; baby boom; Bayesian methods (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2002-04-26
Note: Received: December 2000/Final Version Received: June 2001
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Citations: View citations in EconPapers (10)

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