The Modigliani 'Puzzle'

IoES Working Paper No. W01:05

8 Pages Posted: 17 Aug 2001

See all articles by Tryggvi Thor Herbertsson

Tryggvi Thor Herbertsson

University of Reykjavik

Gylfi Zoega

University of Iceland; University of London - Birkbeck College; Centre for Economic Policy Research (CEPR)

Date Written: February 2002

Abstract

Medium- to long-term changes in unemployment appear to be closely correlated with medium- to long-term changes in private investment. This becomes a puzzle once we abandon the Keynesian framework as an explanation for medium-term movements in unemployment and replace it with the natural-rate framework of Friedman and Phelps. It also opens up the possibility that factors affecting private saving and investment may impinge directly on the natural rate of unemployment. One such factor is the age structure of the population. We explore these possibilities and find a surprisingly robust medium- to long-run relationship between investment and unemployment both over time and across countries.

Keywords: investment, unemployment, age-structure

JEL Classification: J1, E2

Suggested Citation

Herbertsson, Tryggvi Thor and Zoega, Gylfi, The Modigliani 'Puzzle' (February 2002). IoES Working Paper No. W01:05. Available at SSRN: https://ssrn.com/abstract=279290 or http://dx.doi.org/10.2139/ssrn.279290

Tryggvi Thor Herbertsson (Contact Author)

University of Reykjavik ( email )

Reykjavik
Iceland
+354 8613162 (Phone)

HOME PAGE: http://www.ru.is

Gylfi Zoega

University of Iceland ( email )

IS-101 Reykjavik
Iceland

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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