IDEAS home Printed from https://ideas.repec.org/a/fip/fedcec/89805.html
   My bibliography  Save this article

Recessions and the Trend in the US Unemployment Rate

Author

Listed:
  • Kurt Graden Lunsford

Abstract

The unemployment rate in the United States falls slowly in expansions, and it may not reach its previous low point before the next recession begins. Based on this feature, I document that the frequent recessions prior to 1983 are associated with an upward trend in the unemployment rate. In contrast, the long expansions beginning in 1983 are associated with a downward trend. I then estimate a two-variable vector autoregression (VAR) that includes the unemployment rate and a recession indicator. Long-horizon forecasts from this VAR conditioned on no future recessions project that the unemployment rate will go to 3.6 percent after a long period with no recessions.

Suggested Citation

  • Kurt Graden Lunsford, 2020. "Recessions and the Trend in the US Unemployment Rate," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2021(01), pages 1-8, February.
    • Handle: RePEc:fip:fedcec:89805
    DOI: 10.26509/frbc-ec-202101
    as

    Download full text from publisher

    File URL: https://doi.org/10.26509/frbc-ec-202101
    File Function: Full Text
    Download Restriction: no
    File URL: https://libkey.io/10.26509/frbc-ec-202101?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Sichel, Daniel E, 1993. "Business Cycle Asymmetry: A Deeper Look," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 224-236, April.
    2. Antoine Lepetit, 2020. "Asymmetric Unemployment Fluctuations and Monetary Policy Trade-Offs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 29-45, April.
    3. Richard K. Crump & Stefano Eusepi & Marc Giannoni & Aysegul Sahin, 2019. "A Unified Approach to Measuring u," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 50(1 (Spring), pages 143-238.
    4. Robert E. Hall & Marianna Kudlyak, 2022. "Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years?," NBER Macroeconomics Annual, University of Chicago Press, vol. 36(1), pages 1-55.
    5. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230, National Bureau of Economic Research, Inc.
    6. Olivier Coibion & Yuriy Gorodnichenko & Mauricio Ulate, 2018. "The Cyclical Sensitivity in Estimates of Potential Output," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 343-441.
    7. Stéphane Dupraz & Emi Nakamura & Jón Steinsson, 2019. "A Plucking Model of Business Cycles," NBER Working Papers 26351, National Bureau of Economic Research, Inc.
    8. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
    9. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Taylor, Andrew & Shepherd, David & Duncan, Stephen, 2005. "The structure of the Australian growth process: A Bayesian model selection view of Markov switching," Economic Modelling, Elsevier, vol. 22(4), pages 628-645, July.
    2. Dimitris Korobilis, 2013. "Assessing the Transmission of Monetary Policy Using Time-varying Parameter Dynamic Factor Models-super-," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(2), pages 157-179, April.
    3. Jorge Andrés Tamayo Castaño, 2012. "Asimetrías en la demanda por trabajo en Colombia: el papel del ciclo económico," Borradores de Economia 689, Banco de la Republica de Colombia.
    4. Kurt Graden Lunsford, 2023. "Business Cycles and Low-Frequency Fluctuations in the US Unemployment Rate," Working Papers 23-19, Federal Reserve Bank of Cleveland.
    5. Altug, Sumru & Bildirici, Melike, 2010. "Business Cycles around the Globe: A Regime-switching Approach," CEPR Discussion Papers 7968, C.E.P.R. Discussion Papers.
    6. Congressional Budget Office, 2022. "A Markov-Switching Model of the Unemployment Rate: Working Paper 2022-05," Working Papers 57582, Congressional Budget Office.
    7. Luca Benati & Paolo Surico, 2009. "VAR Analysis and the Great Moderation," American Economic Review, American Economic Association, vol. 99(4), pages 1636-1652, September.
    8. Wen Xu, 2016. "Estimation of Dynamic Panel Data Models with Stochastic Volatility Using Particle Filters," Econometrics, MDPI, vol. 4(4), pages 1-13, October.
    9. Stephen G Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2005. "Assessing the Sources of Changes in the Volatility of Real Growth," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & David Norman (ed.),The Changing Nature of the Business Cycle, Reserve Bank of Australia.
    10. Bae, Jinho & Nelson, Charles R., 2007. "Earnings growth and the bull market of the 1990s: Is there a case for rational exuberance?," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 690-707, December.
    11. Rajeev Dhawan & Karsten Jeske & Pedro Silos, 2010. "Productivity, Energy Prices and the Great Moderation: A New Link," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 715-724, July.
    12. Urban J. Jermann & Vincenzo Quadrini, 2006. "Financial innovations and macroeconomic volatility," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    13. Masaru Chiba, 2023. "Robust and efficient specification tests in Markov-switching autoregressive models," Statistical Inference for Stochastic Processes, Springer, vol. 26(1), pages 99-137, April.
    14. Stéphane Dupraz & Emi Nakamura & Jón Steinsson, 2019. "A Plucking Model of Business Cycles," NBER Working Papers 26351, National Bureau of Economic Research, Inc.
    15. Steven J. Davis & James A. Kahn, 2008. "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 155-180, Fall.
    16. Okimoto, Tatsuyoshi & Shimotsu, Katsumi, 2010. "Decline in the persistence of real exchange rates, but not sufficient for purchasing power parity," Journal of the Japanese and International Economies, Elsevier, vol. 24(3), pages 395-411, September.
    17. Andres Arias & Gary Hansen & Lee Ohanian, 2007. "Why have business cycle fluctuations become less volatile?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(1), pages 43-58, July.
    18. Pierre Brochu, 2013. "The source of the new Canadian job stability patterns," Canadian Journal of Economics, Canadian Economics Association, vol. 46(2), pages 412-440, May.
    19. Luca Benati, 2003. "Evolving Post-World War II U.K. Economic Performance," Computing in Economics and Finance 2003 171, Society for Computational Economics.
    20. Terence C. Mills & Ping Wang, 2003. "Have output growth rates stabilised? evidence from the g‐7 economies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(3), pages 232-246, August.

    More about this item

    Keywords

    COVID-19; unemployment;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcec:89805. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.