Abstract
This study analyses asymmetries in the dynamic relationship between unemployment and the business cycle in the UK and the US. Unemployment rates present clear unconditional asymmetry in both countries. Markov switching regime models with two regimes also display clear asymmetries and show that, in the US, the effect of cyclical contractions on unemployment is much stronger than that of expansions, while in the UK it is observed that male unemployment is much more sensitive to cyclical variations than female unemployment.
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Notes
It is interesting to remark that the variations in the unemployment rates also depend on cyclical variations that will take place in the following quarter. This implies that the labour market anticipates imminent cyclical changes.
As is typical, we have chosen to specify a binary state variable, although we could represent a more flexible framework by allowing, for instance, for an additional intermediate state between pure expansion and pure contraction.
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Acknowledgments
We wish to thank an anonymous referee for useful comments and suggestions. Financial support from the Ministerio de Educación y Ciencia (SEJ2007-67101/ECON) is gratefully acknowledged.
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Belaire-Franch, J., Peiró, A. Asymmetry in the relationship between unemployment and the business cycle. Empir Econ 48, 683–697 (2015). https://doi.org/10.1007/s00181-014-0803-0
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DOI: https://doi.org/10.1007/s00181-014-0803-0