Unemployment Risk

35 Pages Posted: 5 Oct 2018

See all articles by Michael T. Kiley

Michael T. Kiley

Board of Governors of the Federal Reserve System

Date Written: 2018-09-28


Fluctuations in upside risks to unemployment over the medium term are examined using quantile regressions. U.S. experience reveals an elevated risk of large increases in unemployment when inflation or credit growth is high and when the unemployment rate is low. Inflation was a significant contributor to unemployment risk in the 1970s and early 1980s, and fluctuations in credit have contributed importantly to unemployment risk since the 1980s. Fluctuations in upside risk to unemployment are larger than fluctuations in the median outlook or downside risk to unemployment. Accounting for inflation and the state of the business cycle is important for understanding the role of financial conditions in shaping unemployment risk. The analysis suggests that fluctuations in near-term risks to unemployment decreased after 1984 because inflation stabilized, but fluctuations in medium-term risks increased owing to the large swings in credit in recent decades.

Keywords: Credit, GDP at risk, Risk management

JEL Classification: E32, E24, E66

Suggested Citation

Kiley, Michael T., Unemployment Risk (2018-09-28). FEDS Working Paper No. 2018-067. Available at SSRN: https://ssrn.com/abstract=3260394 or http://dx.doi.org/10.17016/FEDS.2018.067

Michael T. Kiley (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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