Journal Article

Explaining unemployment: sectoral vs aggregate shocks


Abstract: We include a stock market-based measure of sectoral shocks in a small VAR to examine the role played by these shocks in explaining the behavior of the unemployment rate. Sectoral shocks explain a significant proportion of the variation in the unemployment rate - especially the long-duration unemployment rate - even though other kinds of shocks (such as shocks to monetary policy, defense expenditures, and oil prices) are allowed to affect the unemployment rate. A historical decomposition reveals that recession, and they explain only a modest part of the rise in unemployment over the 1990 recession.

Keywords: Vector autoregression; Unemployment; Labor supply;

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Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Economic Review

Publication Date: 1997

Pages: 3-15

Order Number: 1