DP10745 | Hysteresis and the European Unemployment Problem Revisited

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02/08/2015

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Abstract

The unemployment rate in the euro area appears to contain a signi?ficant nonstationary component, suggesting that some shocks have permanent e¤ects on that variable. I explore possible sources of this nonstationarity through the lens of a New Keynesian model with unemployment, and assess their empirical relevance.