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    Unemployment, investment and global expected returns: a panel FAVAR approach

    Smith, Ron P. and Zoega, Gylfi (2005) Unemployment, investment and global expected returns: a panel FAVAR approach. Working Paper. Birkbeck, University of London, London, UK.

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    We consider the hypothesis that a common factor, global expected returns, drives unemployment and investment in 21 OECD countries over the period 1960-2002. We investigate this hypothesis using a panel-factor augmented-vector autoregression (FAVAR). We first estimate the common factors of unemployment and investment by principal components and show that the first principal component of unemployment is almost identical to that of investment and that they both show the pattern one would expect of a rate of return as indicated by long interest rates. We then estimate panel FAVARs to measure the dynamic impact of the global factors. Investment appears to drive unemployment and – allowing for a moving natural rate of unemployment driven by the global factor – produces much faster adjustment by unemployment.


    Item Type: Monograph (Working Paper)
    Additional Information: BWPEF 0524
    Keyword(s) / Subject(s): Investment, unemployment, principal components
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Research Centres and Institutes: Innovation Management Research, Birkbeck Centre for
    Depositing User: Administrator
    Date Deposited: 29 Mar 2019 13:42
    Last Modified: 02 Aug 2023 17:50


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