Global shocks and world adjustment

Smith, Ron P. and Zoega, Gylfi (2004) Global shocks and world adjustment. Working Paper. Birkbeck, University of London, London, UK.

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Abstract

The literature on unemployment dynamics is concerned with shocks affecting unemployment as well as their propagation mechanisms. Of particular interest is the question whether labour markets have a tendency to converge to some equilibrium if left on their own or whether transient shocks have a persistent effect on the rate of unemployment. In this paper we use OECD unemployment data to infer the nature of the global shocks using factor analysis. We find that the first two factors can account for a large part of the variance and measured persistence of unemployment within countries. We then use regression analysis in which equilibrium unemployment depends on a global shock and domestic labour market institutions, and the institutions also determine the response to global shocks and the speed of convergence to equilibrium. We conclude that national unemployment series do converge to an equilibrium that can changes over time in response to global shocks and that the responsiveness to those shocks and the speed of convergence to equilibrium also change over time as domestic labour market institutions change.

Metadata

Item Type:	Monograph (Working Paper)
School:	Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
Depositing User:	Sarah Hall
Date Deposited:	08 Dec 2020 16:31
Last Modified:	02 Aug 2023 18:06
URI:	https://eprints.bbk.ac.uk/id/eprint/42042

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