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Hysteresis in Unemployment and Jobless Recoveries
Author:
Dmitry Plotnikov
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Series:
IMF Working Papers
Volume/Issue:
Volume 2014: Issue 077
Language:
English
Publication Date:
06 May 2014
DOI:
https://doi.org/10.5089/9781484371749.001
ISBN:
9781484371749
ISSN:
1018-5941
Pages:
37
Keywords:
WP; real wage; Unemployment; hysteresis; business cycles; sunspots; TFP shock; production function; confidence interval; TFP series; depreciation rate; TFP fluctuation; productivity shock; Unemployment rate; Employment; Real wages; Consumption
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2014: Issue 077