Modelling a Regime‐Shifting Beveridge Curve

15 Pages Posted: 13 Jan 2016

See all articles by Richard Dutu

Richard Dutu

University of Waikato

Mark J. Holmes

University of Waikato - Management School, Department of Economics

Brian Silverstone

University of Waikato

Date Written: January 2016

Abstract

This paper offers new insights into Beveridge curve analysis by modelling the unemployment–vacancy rate relationship within a Markov regime‐switching environment in which the probabilities of curve‐shifting are determined endogenously by shift factors. Shift factors include structural factors such as labour market participation and net migration, while cyclical variables include GDP growth, the real rate of interest, and labour productivity. This approach enables us to estimate regime‐specific parameters and to assess the role played by these factors in influencing the transition probabilities of switching between regimes. Using New Zealand data, we show that increases in the participation rate have shifted the Beveridge curve inward, while increases in net migration have shifted the curve outward.

Keywords: Beveridge, frictions, labour, Markov

JEL Classification: C3, E2, J6

Suggested Citation

Dutu, Richard and Holmes, Mark J. and Silverstone, Brian, Modelling a Regime‐Shifting Beveridge Curve (January 2016). Bulletin of Economic Research, Vol. 68, Issue 1, pp. 90-104, 2016. Available at SSRN: https://ssrn.com/abstract=2714635 or http://dx.doi.org/10.1111/boer.12048

Richard Dutu (Contact Author)

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

Mark J. Holmes

University of Waikato - Management School, Department of Economics ( email )

Hamilton
New Zealand

Brian Silverstone

University of Waikato

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

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