DP1082 Unemployment Persistence: Does the Size of the Shock Matter?

Author(s): Gylfi Zoega
Publication Date: December 1994
Keyword(s): Equilibrium Unemployment, Hysteresis, Macroeconomic Policy, Shifting Mean Value Model, World Unemployment
JEL(s): C22, L24, L32
Programme Areas: Human Resources
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1082

This paper is an empirical investigation of unemployment rate series in 17 countries. The timing and size of shifts in the mean rate of unemployment are estimated. The size of the shifts and the remaining persistence in the unemployment rate series are then related to institutional differences between the countries. The observed persistence in the unemployment hysteresis arises following large shocks to unemployment, but not following small changes. These results pose a challenge to theorists since none of the existing models of hysteresis have this property.