Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83927
Authors: 
Matthews, Ken
Minford, Patrick
Naraidoo, Ruthira
Year of Publication: 
2006
Series/Report no.: 
Cardiff Economics Working Papers E2006/25
Abstract: 
This paper develops a political economy model of multiple unemployment equilibria to provide a theory of an endogenous natural rate of unemployment. This model is applied to the UK and the US interwar period which is remembered as the decade of mass unemployment. The theory here sees the natural rate and the associated path of unemployment as a reaction to shocks (mainly demand in nature) and the institutional structure of the economy. The channel through which these two forces feed on each other is a political economy process whereby voters with limited information on the natural rate react to shocks by demanding more or less social protection. The reduced form results obtained con?rm a pattern of unemployment behaviour in which unemployment moves between high and low equilibria in response to shocks.
Subjects: 
Equilibrium unemployment
political economy
“vicious” and “virtuous” circles
bootstrapping
forecasting
JEL: 
E24
E27
P16
Document Type: 
Working Paper

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