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Regional Business Cycles And The Natural Rate Of Unemployment

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  • Gylfi Zoëga

Abstract

Monetary policy is nearly always formulated on the basis of national-level macroeconomic data. This is in spite of the well-known observation that its impact typically differs across regions and industries. The paper shows how policy making might benefit from closer attention to regional developments. Our model is motivated by micro-econometric evidence that shows the response of wage inflation to vacancies to be non-linear: an increase in vacancies raises wage inflation at an increasing rate. Based on this observation, we use a model of the natural rate of unemployment to show that the greater is the dispersion of regional vacancy rates, the higher is the national inflation rate. Our empirical results show that changes in the distribution of regional unemployment in the United States in the 1990s is attributed, in part, to a falling natural rate.

Suggested Citation

  • Gylfi Zoëga, 2002. "Regional Business Cycles And The Natural Rate Of Unemployment," Economics wp19_zoega, Department of Economics, Central bank of Iceland.
    • Handle: RePEc:ice:wpaper:wp19_zoega
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    Cited by:

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    2. Kumar, Anil & M. Orrenius, Pia, 2016. "A closer look at the Phillips curve using state-level data," Journal of Macroeconomics, Elsevier, vol. 47(PA), pages 84-102.
    3. Roberto Bande & Marika Karanassou, 2011. "The NRU and the Evolution of Regional Disparities in Spanish Unemployment," Documentos de trabajo - Analise Economica 0043, IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia.
    4. Strauss, Jack, 2013. "Does housing drive state-level job growth? Building permits and consumer expectations forecast a state’s economic activity," Journal of Urban Economics, Elsevier, vol. 73(1), pages 77-93.
    5. Harendra Behera & Garima Wahi & Muneesh Kapur, 2017. "Phillips Curve Relationship in India: Evidence from State-Level Analysis," Working Papers id:11973, eSocialSciences.
    6. Sharlywest Uwabor Eboigbe & Innocent Okwuosa, 2018. "Test of Linkage between Governance Style and National Economic Indices," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(1), pages 226-238, January.
    7. Owyang, Michael T. & Rapach, David E. & Wall, Howard J., 2009. "States and the business cycle," Journal of Urban Economics, Elsevier, vol. 65(2), pages 181-194, March.
    8. Ryan Herzog, 2013. "Using state level employment thresholds to explain Okun’s Law," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-26, December.
    9. Hiroshi Fujiki & Howard J. Wall, 2006. "Controlling for geographic dispersion when estimating the Japanese Phillips curve," Working Papers 2006-057, Federal Reserve Bank of St. Louis.
    10. Vassilis Monastiriotis, 2008. "The Emergence of Regional Policy in Bulgaria: regional problems, EU influences and domestic constraints," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 15, Hellenic Observatory, LSE.
    11. Ryan W Herzog, 2013. "An Analysis of Okun's Law, the Natural Rate, and Voting Preferences for the 50 States," Economics Bulletin, AccessEcon, vol. 33(4), pages 2504-2517.

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