Hysteresis in Unemployment and Jobless Recoveries

 
Author/Editor: Dmitry Plotnikov
 
Publication Date: May 06, 2014
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
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. 14/77
Subject(s): Unemployment | Economic recession | Economic recovery | Employment | Business cycles | Economic models

 
English
Publication Date: May 06, 2014
ISBN/ISSN: 9781484371749/1018-5941 Format: Paper
Stock No: WPIEA2014077 Pages: 37
Price:
US$18.00 (Academic Rate:
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