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Hysteresis in Unemployment and Jobless Recoveries

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  • Dmitry Plotnikov

    (University Of California, Los Angeles)

Abstract

This paper develops and estimates a general equilibrium rational expectations model with search and multiple equilibria where aggregate shocks have a permanent effect on the unemployment rate. If agents' wealth decreases, the unemployment rate increases for a potentially indefinite period. This makes unemployment rate dynamics path dependent as in Blanchard and Summers (1987). I argue that this feature explains the persistence of the unemployment rate in the U.S. after the Great Recession and over the entire postwar period.

Suggested Citation

  • Dmitry Plotnikov, 2013. "Hysteresis in Unemployment and Jobless Recoveries," 2013 Meeting Papers 208, Society for Economic Dynamics.
    • Handle: RePEc:red:sed013:208
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    References listed on IDEAS

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    Cited by:

    1. Marco Guerrazzi & Paolo Gelain, 2015. "A demand-driven search model with self-fulfilling expectations: the new 'Farmerian' framework under scrutiny," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 81-104, January.
    2. Di Caro, Paolo, 2014. "Regional recessions and recoveries in theory and practice: a resilience-based overview," MPRA Paper 60300, University Library of Munich, Germany.

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