New Evidenceon Cyclical and Structural Sources of Unemployment

Jinzhu Chen, Bharat Trehan, Prakash Kannan and Prakash Loungani

No 2011/106, IMF Working Papers from International Monetary Fund

Abstract: We provide cross-country evidence on the relative importance of cyclical and structural factors in explaining unemployment, including the sharp rise in U.S. long-term unemployment during the Great Recession of 2007-09. About 75% of the forecast error variance of unemployment is accounted for by cyclical factors-real GDP changes (?Okun‘s Law?), monetary and fiscal policies, and the uncertainty effects emphasized by Bloom (2009). Structural factors, which we measure using the dispersion of industry-level stock returns, account for the remaining 25 percent. For U.S. long-term unemployment the split between cyclical and structural factors is closer to 60-40, including during the Great Recession.

Keywords: WP; dispersion index; Dispersion shock; stock market dispersion index; unemployment; structural unemployment; stock markets; uncertainty; uncertainty index; long-term unemployment; unemployment fluctuation; structural unemployment rate; aggregate unemployment equation; unemployment duration; index result; unemployment rate shock; employment dispersion; Unemployment rate; Asset prices (search for similar items in EconPapers)
Pages: 42
Date: 2011-05-01
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Citations: View citations in EconPapers (19)

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Related works:
Journal Article: New evidence on cyclical and structural sources of unemployment (2012)
Working Paper: New evidence on cyclical and structural sources of unemployment (2011)
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