New Evidenceon Cyclical and Structural Sources of Unemployment

Author/Editor: Jinzhu Chen ; Bharat Trehan ; Prakash Kannan ; Prakash Loungani
Publication Date: May 01, 2011
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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. 11/106
Subject(s): Economic recession | External shocks | Global Financial Crisis 2008-2009 | Stock markets | Unemployment

Author's Keyword(s): unemployment | structural unemployment | stock markets | uncertainty
Publication Date: May 01, 2011
ISBN/ISSN: 9781455260416/1018-5941 Format: Paper
Stock No: WPIEA2011106 Pages: 42
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