United States of U-Star

Hie Joo Ahn and Jeremy B. Rudd
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Hie Joo Ahn: https://www.federalreserve.gov/econres/hie-joo-ahn.htm
Jeremy B. Rudd: https://www.federalreserve.gov/econres/jeremy-rudd.htm

No 2026-060, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper estimates state-level trend unemployment rates (trend U-star) based on the trend components of unemployment inflows and outflows across unemployment durations. The estimated trend U-stars, particularly the portions attributable to long-termunemployment, have levels and dynamics that vary substantially across states. Long-termunemployment makes a relatively small contribution to trend U-star in agricultural states, but takes a larger share for Rust Belt states and several states in the Sun Belt. While higher educational attainment and population aging put downward pressure on U-star, the effects of industrial structure and labor-market rigidities are mixed. Using the estimates of state-level trend U-star, we revisit previous work on state-level Phillips curves and find that the estimated slopes of forward-looking inflation equations are driven bymovements in trend U-star rather than by cyclical variation in the unemployment rate.

Keywords: trend unemployment rate; natural rate of unemployment; unemployment duration; duration dependence; trend-cycle decomposition; nonlinear state space model; extended Kalman filter; Nelson–Siegel model; new-Keynesian Phillips curve (search for similar items in EconPapers)
JEL-codes: C41 C53 E24 E27 E32 J21 (search for similar items in EconPapers)
Pages: 72 p.
Date: 2026-07-25
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:103715

DOI: 10.17016/FEDS.2026.060

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