 Vicious and virtuous circles--The political economy of unemploymentA. Patrick Minford and Ruthira Naraidoo No 200914, Working Papers from University of Pretoria, Department of Economics Abstract: We develop an empirical nonlinear model of equilibrium unemployment and test its policy implications for a number of OECD countries. The model here sees the natural rate and the associated equilibrium path of unemployment as endogenous, pushed by the interaction of shocks and the institutional structure of the economy; the channel through which these two forces feed on each other is a political economy process whereby voters with 'limited information' on the natural rate of unemployment react to shocks by demanding more or less social protection. The reduced form results from a dozen OECD economies give support to the model prediction of a pattern of unemployment behaviour in which unemployment moves between high and low equilibria in response to shocks and the model specification is superior in forecasting performance out of sample to alternative models of `generalised hysteresis'. Keywords: Equilibrium unemployment; political economy; vicious and virtuous circles; bootstrapping; forecasting (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:200914 Access Statistics for this paper More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC. |
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