What determines unemployment in the long run? Band spectrum regression on ten countries
Erik Hegeland () and
Josef Taalbi ()
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Erik Hegeland: Department of Economic History and International Relations, Stockholm University
No 203, Lund Papers in Economic History from Lund University, Department of Economic History
This paper presents an empirical analysis of the relation between unemployment and macroeconomic performance. A strong correlation has been pointed out before, but a crucial question is over what time-horizon this holds. To the best of our knowledge, no previous cross-country study has shown that there is a long-run relationship between unemployment and macroeconomic performance over a time-period that stretches before the 1960s. To address this issue, we use wavelet analysis to decompose the time series into short, medium and long-run variations, and band spectrum regressions on the relation between unemployment, GDP, investment, long-term interest rate and TFP, covering ten countries 1913-2016. This methodology has several advantages compared to standard econometrical methods and other tools for decomposition. Our results show that unemployment correlates negatively with the long-run components of investment. This suggests that aggregate demand and capital formation inuence long-term labor market outcomes. According to our estimates ca 17-percent of overall variations in unemployment and 29 percent of the long-run variations may be explained by long-run variations in capital formation.
Keywords: unemployment; capital formation; wavelets; multiple equilibria (search for similar items in EconPapers)
JEL-codes: E10 E12 E22 E24 E32 (search for similar items in EconPapers)
Pages: 22 pages
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:luekhi:0203
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