New Evidenceon Cyclical and Structural Sources of Unemployment

Author/Editor:

Jinzhu Chen ; Bharat Trehan ; Prakash Kannan ; Prakash Loungani

Publication Date:

May 1, 2011

Electronic Access:

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Summary:

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.

Series:

Working Paper No. 2011/106

Subject:

English

Publication Date:

May 1, 2011

ISBN/ISSN:

9781455260416/1018-5941

Stock No:

WPIEA2011106

Pages:

42

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