Hysteresis in Unemployment and Jobless Recoveries

Author/Editor: Dmitry Plotnikov
Publication Date: May 06, 2014
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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. 14/77
Subject(s): Unemployment | Economic recession | Economic recovery | Employment | Business cycles | Economic models

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