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New Evidenceon Cyclical and Structural Sources of Unemployment

Author/Editor: Jinzhu Chen | Bharat Trehan | Prakash Kannan | Prakash Loungani
Authorized for Distribution: May 1, 2011
Electronic Access: Free Full Text (PDF file size is 961KB)
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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: 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.
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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
    Published:   May 1, 2011        
    ISBN/ISSN:   9781455260416/1018-5941   Format:   Paper
    Stock No:   WPIEA2011106   Pages:   42
    Price:   US$18.00
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