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Re-examining the Structural and the Persistence Approach

Author

Listed:
  • Tino Berger

    (Economics University of Ghent)

  • Gerdie Everaert

Abstract

This paper uses an unobserved component model to examine the relative importance of the structural and the persistence approach to unemployment. We derive the NAIRU from a standard imperfect competition model. The price- and wage-setting schedules include a measure for unemployment persistence. Short-run dynamics are introduced through a demand equation which is linked to unemployment via Okun’s Law. This multivariate model is then estimated for the US and the euro data using Bayesian techniques and the Kalman filter. The results show that although cyclical shocks are very persistent, most of the increase in European unemployment is driven by supply factors. The degree of persistence is somewhat lower in the US but demand shocks seem to be more important in explaining variation of unemployment

Suggested Citation

  • Tino Berger & Gerdie Everaert, 2006. "Re-examining the Structural and the Persistence Approach," Computing in Economics and Finance 2006 226, Society for Computational Economics.
    • Handle: RePEc:sce:scecfa:226
    as

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    More about this item

    Keywords

    Unemployment persistence; Kalman filter; Bayesian analysis.;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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