Working Paper: NBER ID: w17274
Authors: Laurence M. Ball; Nicols De Roux; Marc Hofstetter
Abstract: This study constructs a new data set on unemployment rates in Latin America and the Caribbean and then explores the determinants of unemployment. We compare different countries, finding that unemployment is influenced by the size of the rural population and that the effects of government regulations are generally weak. We also examine large, persistent increases in unemployment over time, finding that they are caused by contractions in aggregate demand. These demand contractions result from either disinflationary monetary policy or the defense of an exchange-rate peg in the face of capital flight. Our evidence supports hysteresis theories in which short-run changes in unemployment influence the natural rate.
Keywords: unemployment; Latin America; Caribbean; aggregate demand; hysteresis
JEL Codes: E24; E52; F41; J60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| size of the rural population (R23) | unemployment (J64) |
| contractions in aggregate demand (E00) | long-run unemployment (J64) |
| disinflationary monetary policy (E52) | contractions in aggregate demand (E00) |
| capital flight (F21) | contractions in aggregate demand (E00) |
| short-run changes in unemployment (J64) | natural rate of unemployment (J64) |