Markov Switching in Disaggregate Unemployment Rates

Posted: 20 Jun 2001

See all articles by Marcelle Chauvet

Marcelle Chauvet

University of California Riverside; University of California Riverside

Simon Potter

Peter G. Peterson Institute for International Economics

Multiple version iconThere are 2 versions of this paper

Abstract

We develop a dynamic factor model with Markov switching to examine secular and business cycle fluctuations in the U.S. unemployment rates. We extract the common dynamics amongst unemployment rates disaggregated for 7 age groups. The framework allows analysis of the contribution of demographic factors to secular changes in unemployment rates. In addition, it allows examination of the separate contribution of changes due to asymmetric business cycle fluctuations. We find strong evidence in favor of the common factor and of the switching between high and low unemployment rate regimes. We also find that demographic adjustments can account for a great deal of secular changes in the unemployment rates, particularly the abrupt increase in the 1970s and 1980s and the subsequent decrease in the last 18 years.

Keywords: Markov Switching, Unemployment, Common Factor, Asymmetries, Business Cycle, Baby Boom, Bayesian Methods

JEL Classification: E3, E13, E24, J0

Suggested Citation

Chauvet, Marcelle and Potter, Simon, Markov Switching in Disaggregate Unemployment Rates. Available at SSRN: https://ssrn.com/abstract=273611

Marcelle Chauvet (Contact Author)

University of California Riverside ( email )

Department of Economics
4136 Sproul Hall
Riverside, CA 92527
United States
(951) 827-1587 (Phone)

HOME PAGE: http://sites.google.com/site/marcellechauvet/

University of California Riverside ( email )

Department of Economics
Riverside, CA 92527
United States

HOME PAGE: http://sites.google.com/site/marcellechauvet/

Simon Potter

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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