Hysteresis in Unemployment and Jobless Recoveries

Author/Editor:

Dmitry Plotnikov

Publication Date:

May 6, 2014

Electronic Access:

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Summary:

This paper develops and estimates a general equilibrium rational expectations model with search and multiple equilibria where aggregate shocks have a permanent effect on the unemployment rate. If agents' wealth decreases, the unemployment rate increases for a potentially indefinite period. This makes unemployment rate dynamics path dependent as in Blanchard and Summers (1987). I argue that this feature explains the persistence of the unemployment rate in the U.S. after the Great Recession and over the entire postwar period.

Series:

Working Paper No. 2014/077

Subject:

Consumption Employment Labor National accounts Real wages Unemployment rate

English

Publication Date:

May 6, 2014

ISBN/ISSN:

9781484371749/1018-5941

Stock No:

WPIEA2014077

Pages:

37

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