Hysteresis in Unemployment and Jobless Recoveries

May 6, 2014

Preview Citation

Format: Chicago

Dmitry Plotnikov. Hysteresis in Unemployment and Jobless Recoveries, (USA: International Monetary Fund, 2014) accessed September 24, 2024

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.

Subject: Consumption, Employment, Labor, National accounts, Real wages, Unemployment rate

Keywords: Business cycles, Confidence interval, Consumption, Depreciation rate, Employment, Hysteresis, Production function, Productivity shock, Real wage, Real wages, Sunspots, TFP fluctuation, TFP series, TFP shock, Unemployment, Unemployment rate, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/077
Stock No:

WPIEA2014077
ISBN:

9781484371749
ISSN:

1018-5941

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