New Evidence on Cyclical and Structural Sources of Unemployment

43 Pages Posted: 20 May 2011  

Jinzhu Chen

affiliation not provided to SSRN

Prakash Kannan

International Monetary Fund (IMF)

Bharat Trehan

Federal Reserve Bank of San Francisco

Prakash Loungani

International Monetary Fund (IMF)

Date Written: May 2011

Abstract

We provide cross-country evidence on the relative importance of cyclical and structural factors in explaining unemployment, including the sharp rise in U.S. long-term unemployment during the Great Recession of 2007-09. About 75% of the forecast error variance of unemployment is accounted for by cyclical factors-real GDP changes (Okun‘s Law), monetary and fiscal policies, and the uncertainty effects emphasized by Bloom (2009). Structural factors, which we measure using the dispersion of industry-level stock returns, account for the remaining 25 percent. For U.S. long-term unemployment the split between cyclical and structural factors is closer to 60-40, including during the Great Recession.

Suggested Citation

Chen, Jinzhu and Kannan, Prakash and Trehan, Bharat and Loungani, Prakash, New Evidence on Cyclical and Structural Sources of Unemployment (May 2011). IMF Working Papers, Vol. , pp. 1-42, 2011. Available at SSRN: https://ssrn.com/abstract=1847339

Jinzhu Chen

affiliation not provided to SSRN

Prakash Kannan (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
(202)623-8806 (Phone)

Bharat Trehan

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

Prakash Loungani

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7043 (Phone)
202-623-4740 (Fax)

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