Sources of German Unemployment: Evidence from a Structural VAR Model

Abstract:     
This paper analyzes the dynamic effects of different macroeconomic shocks on unemployment in Germany. In a first step, a cointegration analysis of productivity, prices, real wages, employment, and the unemployment rate reveals two long run relationships, interpreted as a labor demand and a wage setting scheme. Secondly, a structural VAR model is identified using the restrictions suggested by a single macroeconomic model. The impulse response analysis and the forecast error variance decomposition display that price, demand, and labor supply shocks affect unemployment significantly in the short/medium run. Interestingly, however, wage and technology shocks do not seem to play a dominant role.

Number of Pages in PDF File: 34

Keywords: Unemployment, Structural VAR, Cointegration

JEL Classification: J60, E24

working papers series