Unemployment persistence: the case of Sweden

Abstract

An unobserved components time-series model is used to examine the persistence in Swedish unemployment. Three sources of unemployment persistence are identified: natural rate shocks; hysteresis; and persistent cycles. Hysteresis effects are modelled by allowing cyclical unemployment to have a lagged effect on the natural rate. The evidence suggests that the course of unemployment in Sweden has mainly been determined by natural rate shocks. This is especially the case for the large increase during the early 1990s, but also for the smaller changes between 1970 and the late 1980s. Hysteresis effects are also present but they are less important because of the relatively small cyclical changes.

^* This is a considerably revised version of Working Paper 1995:16, Department of Economics, Uppsala University.

^* This is a considerably revised version of Working Paper 1995:16, Department of Economics, Uppsala University.

Notes

^* This is a considerably revised version of Working Paper 1995:16, Department of Economics, Uppsala University.