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dc.contributor.authorSmith, Ron P.en_US
dc.contributor.authorZoega, Gylfien_US
dc.description.abstractOECD unemployment rates show long swings which dominate shorter business cycle components and these long swings show a range of common patterns. Using a panel of 21 OECD countries 1960-2002, we estimate the common factor that drives unemployment by the first principal component. This factor has a natural interpretation as a measure of global expected returns, which is given added plausibility by the fact that it is almost identical to the common factor driving investment shares. We estimate a model of unemployment adjustment, which allows for the influence both of the global factor and of labour market institutions and we examine whether the global factor can act as a proxy for the natural rate in a Phillips Curve. In 15 out of the 21 countries one cannot reject that the same natural rate, as a function of the global factor, appears in both the unemployment and inflation equations. In explaining both unemployment and inflation, the global factor is highly significant, suggesting that models which ignore the global dimension are likely to be deficient.en_US
dc.publisher|aKiel Institute for the World Economy (IfW) |cKiel-
dc.relation.ispartofseries|aEconomics Discussion Papers / Institut für Weltwirtschaft |x2007-48en_US
dc.subject.keywordUnemployment dynamicsen_US
dc.subject.keywordlabour market institutions investmenten_US
dc.subject.keywordprincipal componentsen_US
dc.subject.keywordglobal factorsen_US
dc.titleGlobal Factors, Unemployment Adjustment and the Natural Rateen_US
dc.typeWorking Paperen_US

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