Working Paper: NBER ID: w29343
Authors: Laurence M. Ball; Joern Onken
Abstract: This paper studies the dynamics of unemployment (u) and its natural rate (u*), with u* measured by real-time estimates for 29 countries from the OECD. We find strong evidence of hysteresis: an innovation in u causes u* to change in the same direction, and therefore has permanent effects. For our baseline specification, a one percentage point deviation of u from u* for one year has a long-run effect of 0.16 points on both variables. When we allow asymmetry, we find, perhaps surprisingly, that decreases in u have larger long-run effects than increases in u.
Keywords: unemployment; hysteresis; natural rate; OECD; monetary policy
JEL Codes: E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| actual unemployment (u) (J64) | natural rate (u) (J69) |
| decrease in actual unemployment (u) (J64) | natural rate (u) (J69) |
| increase in actual unemployment (u) (J64) | natural rate (u) (J69) |
| actual unemployment (u) (J64) | actual unemployment (u) (J64) |
| natural rate (u) (J69) | actual unemployment (u) (J64) |