A Bayesian approach to determine the impact of institutions on the unemployment rate
Andreas Sachs ()
No 10-058, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research
Labor and product market regulations affect the unemployment rate of a country without doubt. Econometricians, however, have yet to establish an unequivocal significance of this impact. Model mis-specification, one of the main underlying problems, is overcome by adopting a Bayesian Model Averaging approach. I apply this method to a panel data set that covers 17 OECD countries for the time period from 1982 to 2005 and for up to 20 potential explanatory variables. 8 institutional indicators are identified as significant determinants of unemployment. Endogeneity due to reverse causality is also considered by applying an instrumental variable estimation approach.
Keywords: unemployment; institutions; labor and product markets; model averaging (search for similar items in EconPapers)
JEL-codes: C33 E02 E24 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:10058
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