DP10745 Hysteresis and the European Unemployment Problem Revisited

Author(s): Jordi Galí
Publication Date: August 2015
Keyword(s): insider-outsider models, New Keynesian model, unemployment fluctuations, wage Phillips curve
JEL(s): E24, E31, E32
Programme Areas: Labour Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations, Macroeconomics and Growth
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10745

The unemployment rate in the euro area appears to contain a signi…ficant nonstationary component, suggesting that some shocks have permanent e¤ects on that variable. I explore possible sources of this nonstationarity through the lens of a New Keynesian model with unemployment, and assess their empirical relevance.