The Financial Crisis: Joblessness and Investmentlessness
28 Pages Posted: 30 Jan 2013
Financial crises follow a pattern that consists of changes in asset prices, real exchange rates, investment and employment. One noteworthy feature of this pattern is the "jobless recoveries" that often follow such crises. This was the experience of Finland and Sweden in the aftermath of their financial crises in the early 1990s and currently appears to be the case in the United States and many other countries. The behavior of unemployment during the crises mirrors that of investment, which is consistent with models of the natural rate of unemployment that make labor demand depend on investment in physical capital, new workers and customers. The implication is that the natural rate of unemployment falls during the investment boom that precedes a crisis and rises in its aftermath.
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