Persistent shocks and incomplete regional adjustment: a model-averaging approach

Ryan Greenaway-McGrevy and Kyle K. Hood

Regional Studies, 2022, vol. 56, issue 3, 371-380

Abstract: Two competing paradigms to modelling the impacts of regional economic shocks have arisen: ‘disequilibrium’ models, which predict that regional economies eventually fully recover, and ‘no-equilibrium’ models, which predict economic shocks have a permanent effect. To address this controversy, we adapt contemporary model-averaging methods to optimally combine both paradigms and thereby permit intermediate cases in which recoveries can be partial. Applying our method to a set of labour market models that span the disequilibrium and no-equilibrium paradigms, we find that regional recoveries are incomplete, implying that downturns have long-lasting effects on regional unemployment rates.

Date: 2022
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DOI: 10.1080/00343404.2021.1948001

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