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Heterogeneity and Unemployment Dynamics

Hie Joo Ahn () and James Hamilton ()
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Hie Joo Ahn: Board of Governors of the Federal Reserve System (U.S.)

No 2016-12, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US)

Abstract: This paper develops new estimates of flows into and out of unemployment that allow for unobserved heterogeneity across workers as well as direct effects of unemployment duration on unemployment-exit probabilities. Unlike any previous paper in this literature, we develop a complete dynamic statistical model that allows us to measure the contribution of different shocks to the short-run, medium-run, and long-run variance of unemployment as well as to specific historical episodes. We find that changes in the inflows of newly unemployed are the key driver of economic recessions and identify an increase in permanent job loss as the most important factor.

Keywords: Business cycles; Great Recession; Unemployment duration; Unobserved heterogeneity; Duration dependence; State space model; Extended Kalman filter (search for similar items in EconPapers)
JEL-codes: C41 C53 E24 E27 E32 J21 (search for similar items in EconPapers)
Date: 2016-02-22, Revised 2018-07-10
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https://www.federalreserve.gov/econres/feds/files/2016012r1pap.pdf (Revision) (application/pdf)
https://www.federalreserve.gov/econresdata/feds/2016/files/2016012pap.pdf (Original) (application/pdf)

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Working Paper: Heterogeneity and Unemployment Dynamics (2016) Downloads
Working Paper: Heterogeneity and Unemployment Dynamics (2016) Downloads
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DOI: 10.17016/FEDS.2016.012r1

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