Markov Switching in Disaggregate Unemployment Rates

38 Pages Posted: 13 Sep 2001

See all articles by Marcelle Chauvet

Marcelle Chauvet

University of California Riverside

Chinhui Juhn

University of Houston - Department of Economics; IZA Institute of Labor Economics

Simon Potter

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: May 2001

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 Juhn, Chinhui and Potter, Simon, Markov Switching in Disaggregate Unemployment Rates (May 2001). FRB of New York Staff Report No. 132. Available at SSRN: https://ssrn.com/abstract=283331 or http://dx.doi.org/10.2139/ssrn.283331

Marcelle Chauvet

University of California Riverside ( email )

900 University Avenue
4136 Sproul Hall
Riverside, CA 92521
United States
(951) 827-1587 (Phone)

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

Chinhui Juhn

University of Houston - Department of Economics ( email )

Houston, TX 77204-5882
United States
713-743-3823 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Simon Potter (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6309 (Phone)
212-720-1844 (Fax)

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