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Vicious and virtuous circles - the political economy of unemployment

Minford, Anthony Patrick Leslie and Naraidoo, Ruthira 2010. Vicious and virtuous circles - the political economy of unemployment. South African Journal of Economics 78 (1) , pp. 1-22. 10.1111/j.1813-6982.2010.01235.x

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We develop an empirical non-linear model of equilibrium unemployment and test its policy implications for a number of OECD countries. The model here sees the natural rate and the associated equilibrium path of unemployment as endogenous, pushed by the interaction of shocks and the institutional structure of the economy; the channel through which these two forces feed on each other is a political economy process whereby voters with “limited information” on the natural rate of unemployment react to shocks by demanding more or less social protection. The reduced form results from a dozen OECD economies give support to the model prediction of a pattern of unemployment behaviour in which unemployment moves between high and low equilibria in response to shocks and the model specification is superior in forecasting performance out of sample to alternative models of “generalised hysteresis”.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HM Sociology
J Political Science > JA Political science (General)
Uncontrolled Keywords: Equilibrium unemployment ; Political economy ; Vicious and virtuous circles ; Bootstrapping ; Forecasting
Publisher: Wiley
ISSN: 0038-2280
Last Modified: 04 Jun 2017 03:31

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