Munich Personal RePEc Archive

How to decode Unemployment Persistence: An econometric framework for identifying and comparing the sources of persistence

Møller, Niels Framroze (2016): How to decode Unemployment Persistence: An econometric framework for identifying and comparing the sources of persistence.

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Abstract

Most econometric analyses of persistence focus on the existence of non-stationary unemployment but not the origin of this. The present research contains a multivariate econometric framework for identifying and comparing different sources of unemployment persistence (e.g. hysteresis versus a slowly moving equilibrium rate). A small example, considering historical data (1988-2006) for the UK, demonstrates how the method can be applied in practice. Although this primarily serves as an illustration, the evidence clearly suggests that persistence was due to a slowly moving equilibrium (driven by the price of crude oil) and not to hysteresis mechanisms.

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