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Common Trends and Hysteresis in Unemployment

Author

Listed:
  • Jacobson, Tor
  • Vredin, Anders

    (Dept. of Economics, Stockholm School of Economics)

  • Warne, Anders

Abstract

We examine the sources of labor market fluctuations in the Scandinavian countries using VAR models with common trends. Our primary concerns are the sources of hysteresis in unemployment and possible differences between the economies. A simple economic model is presented to motivate our identifying assumptions. We show how estimates of the theoretical parameters may be obtained from the estimated common trends coefficients. The empirical results suggest that (i) the only common source of hysteresis in the Scandinavian labor markets is shocks to wage setting (or, equivalently, equilibrium unemployment); (ii) transitory labor demand shocks, which are emphasized in the theoretical literature on hysteresis, do not seem to be empirically important.

Suggested Citation

  • Jacobson, Tor & Vredin, Anders & Warne, Anders, 1994. "Common Trends and Hysteresis in Unemployment," SSE/EFI Working Paper Series in Economics and Finance 34, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0034
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    Citations

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    Cited by:

    1. Annika Alexius, 1997. "Import prices and nominal exchange rates in Sweden," Finnish Economic Papers, Finnish Economic Association, vol. 10(2), pages 99-107, Autumn.
    2. Jacobson, Tor & Jansson, Per & Vredin, Anders & Warne, Anders, 2002. "Identifying the Effects of Monetary Policy Shocks in an Open Economy," Working Paper Series 134, Sveriges Riksbank (Central Bank of Sweden).

    More about this item

    Keywords

    Common trends; hysteresis; identification; structural parameters; supply and demand shocks; unemployment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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