Sources of unemployment in Namibia: an application of the structural VAR approach

Sunde, Tafirenyika and Akanbi, Olusegun Ayodele (2015): Sources of unemployment in Namibia: an application of the structural VAR approach.

Abstract

The main purpose of the research was to establish the sources of unemployment in Namibia for the period 1980 to 2013 using the SVAR methodology. Empirical results show that persistently high unemployment is the result of a combination of various shocks as well as the hysteresis mechanism. The impulse response functions and variance decomposition functions agree that labour supply, aggregate demand, and real wages seem to be the critical factors affecting unemployment. Moreover, the price shocks affect unemployment in the long run and productivity shocks explain only a small fraction of the forecast error variance of unemployment in both the short and long run. This finding is consistent with the controversy of uncertain effects of productivity shocks on the unemployment rate. Aggregate demand policies, deregulation policies and structural labour market reforms can be useful policy instruments to tackle unemployment in Namibia.

• Item Type: MPRA Paper
• Language: English
• Keywords: Unemployment, Structural VAR, Impulse response, Variance decomposition, Namibia
• Subjects: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs; J - Labor and Demographic Economics > J4 - Particular Labor Markets > J45 - Public Sector Labor Markets; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search

References

Akanbi, O.A. & Du Toit, C.B. (2011) ‘Macro-econometric modeling for the Nigerian economy: A growth–poverty gap analysis’, Economic Modelling, Vol. 28, No. 1, pp.335-350.

Algan, Y.P.C. and André Z. (2002) ‘Public employment and labour market performance.’ Economic Policy 17(34): pp.7-66.

Alom, F. Ward, B. D. & Hu, B. (2013) ‘Macroeconomic effects of world oil and food price shocks in Asia and Pacific economies: application of SVAR models’, OPEC Energy Review, 37(3), pp.327-372.

Amisano, G. & Serati, M. (2003) ‘What goes up sometimes stays up: shocks and institutions as determinants of unemployment persistence’, Scottish Journal of Political Economy, 50(4), pp.440-470.

Amisano, G., Giannini, C. (1997) Topics in structural VAR econometrics, Springer Publishing House, Berlin.

Balmaseda, M., Dolado, J. J., & Lopez-Salido, J. D. (2000). ‘The dynamic effects of shocks to labour markets: evidence from OECD countries’. Oxford Economic Papers, pp.3-23.

Berkelmans, L. (2005) ‘Credit and monetary policy: an Australian SVAR’. Reserve Bank of Australia Canberra, ACT, pp.1-32.

Bernanke, B.S. (1986) ‘Alternative Explorations of the Money-Income Correlation’, Carnegie Rochester Conference Series on Public Policy, Vol. 25, pp.49–99.

Bernanke, B.S. Mihov I. (1998) ‘Measuring monetary policy’, Quarterly Journal of Economics, Vol. 113, pp.869–902.

Bhuiyan, R. (2008) ‘Monetary transmission mechanism in a small open economy: A Bayesian structural VAR approach’, (No. 1183). Queen's Economics Department Working Paper.

Blanchard, O.J. Quah, D. (1989) ‘The dynamic effects of aggregate demand and aggregate supply disturbances’, American Economic Review, Vol. 79: pp.655–673.

Brüggemann, R. (2006) Sources of German unemployment: a structural vector error correction analysis. Empirical Economics, Vol. 31, No. 2, pp.409-431.

Carstensen, K. Hansen, G. (2000) Cointegration and Common Trends on the West German Labour Market, Munich Reprints in Economics, University of Munich, Department of Economics 19947.

Chang, C.C. Chung, S.L. & Stapleton, R.C. (2007) ‘Richardson extrapolation techniques for the pricing of American-style options’, Journal of Futures Markets, Vol. 27, No. 8, pp.791.

Chow, G.C. & Lin, A.L. (1971) ‘Best linear unbiased interpolation, distribution and extrapolation of time series by related series’, The Review of Economics and Statistics, pp.372-375.

Christoffel, K.P. & Linzert, T. (2005) ‘The role of real wage rigidity and labour market frictions for unemployment and inflation dynamics’.

Dolado, J. J. & Jimeno, J.F. (1997) ‘The causes of Spanish unemployment: A structural VAR approach’, European Economic Review, Vol. 41, No. 7, pp.1281-1307.

Dungey, M. & Pagan, A. (2009) ‘Extending a SVAR model of the Australian economy’, Economic Record, Vol. 85 No. 268, pp.1-20.

Eita, J.H. & Ashipala, J.M. (2010) ‘Determinants of unemployment in Namibia’, International Journal of Business and Management, Vol. 5, No. 10, pp.92-104.

Fabiani, S. Locarno, A. Oneto, G. P. & Sestito, P. (2001) ‘The sources of unemployment fluctuations: an empirical application to the Italian case’, Labour Economics, 8(2), pp.259-289.

Gambetti, L. & Pistoresi, B. (2004) Policy matters. ‘The long-run effects of aggregate demand and mark-up shocks on the Italian unemployment rate’, Empirical Economics, Vol. 29, No. 2, pp.209-226.

Gil, A.R. (2012). Causes of unemployment and the effectiveness of demand policies. Doctoral Dissertation, Leeds University.

Jacobs, J.P. Wallis, K.F. (2005) ‘Comparing SVARs and SEMs: two models of the UK economy’, Journal of Applied Econometrics, Vol. 20, pp.209–228.

Jacobson, T. Vredin, A. & Warne, A. (1997) Common trends and hysteresis in Scandinavian unemployment. European Economic Review, 41(9), pp.1781-1816.

Karanassou, M. & Sala, H. (2012) ‘Productivity growth and the Phillips curve: a reassessment of the US experience’, Bulletin of Economic Research, Vol. 64 No. 3, pp.344-366.

Kim, S. & Roubini, N. (2000) ‘Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach’, Journal of Monetary Economics, Vol. 45, No. 3, pp.561-586.

Lindbeck, A.L. (1993) Unemployment and macroeconomics. The MIT Press, Cambridge United Kingdom.

Linzert, T. (2001) Sources of German unemployment: evidence from a structural VAR model. ZEW Discussion Papers.

Lütkepohl, H. (2012) Vector autoregressive and vector error correction models in H Lutkepohl and Kratzig, Eds, applied time series econometrics. Cambridge University Press: Chapter 3, Cambridge UK.

Maidorn, S. 2003. ‘The effects of shocks on the Austrian unemployment rate–a structural VAR approach’, Empirical Economics, Vol. 28, No. 2, pp.387-402.

Møller, N.F. (2013) ‘Understanding unemployment hysteresis: A system-based econometric approach to changing equilibria and slow adjustment’, Univ. of Copenhagen Dept. of Economics Discussion Paper, pp.13-26.

Ngalawa, H. & Viegi, N. (2011) ‘Dynamic effects of monetary policy shocks in Malawi’, South African Journal of Economics, Vol. 79, No. 3, pp.224-250.

Shiimi I.W and Kadhikwa G. (1999) ‘Savings and Investment in Namibia’ Bank of Namibia Occasional Paper No. 2.

Sims, C. A. Stock, J. H. & Watson, M. W. (1990). ‘Inference in linear time series models with some unit roots’.

Econometrica: Journal of the Econometric Society, 113-144. Sims, C.A. 1980 ‘Macroeconomics and reality’, Econometrica: Journal of the Econometric Society, Vol. 48, pp.1-48.

Smith, S.K. & Sincich, T. (1988) ‘Stability over time in the distribution of population forecast error’, Demography, Vol. 25, No. 3, pp.461-474.

Smith, S.K. (1987) ‘Tests of forecast accuracy and bias for county population projections’, Journal of the American Statistical Association, Vol. 82, No. 400, pp.991-1003.

Sonedda, D. (2006) ‘A structural VAR approach on labour taxation policies’, Applied Economics, Vol. 38, pp.95–114. Su, von Li. (2006) The causes of German unemployment: a structural VAR approach, Doctoral Dissertation, Universität Oldenburg, Germany.

Tsonis, A.A. & Austin, G.L. (1981) ‘An evaluation of extrapolation techniques for the short‐term prediction of rain amounts’, Atmosphere-Ocean, Vol. 19, No. 1, pp.54-65.