On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates

Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of St. Louis
Working Papers
U. S. regional business cycles and the natural rate of unemployment
Howard J. Wall
Gylfi Zoega
Abstract

Estimates of the natural rate of unemployment are important in many macroeconomic models used by economists and policy advisors. This paper shows how such estimates might benefit from closer attention to regional developments. Regional business cycles do not move in lockstep and greater dispersion among regions can affect estimates of the natural rate of unemployment. There is microeconomic evidence that employers are more reluctant to cut wages than they are to raise them. Accordingly, this means that the relationship between wage inflation and vacancies is convex: an increase in vacancies raises wage inflation at an increasing rate. Our empirical results are consistent with this and indicate that if all else had remained constant, the reduction in the dispersion of regional unemployment rates between 1982 and 2000 would have meant a two-percentage point drop in the natural rate of aggregate unemployment.


Download Full text
Cite this item
Howard J. Wall & Gylfi Zoega, U. S. regional business cycles and the natural rate of unemployment, Federal Reserve Bank of St. Louis, Working Papers 2003-030, 2003.
More from this series
JEL Classification:
Subject headings:
Keywords: Unemployment ; Regional economics
For corrections, contact Anna Oates ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal