Cyclical Long-term Unemployment, Skill Loss, and Monetary Policy

Item Type Monograph (Working Paper)
Abstract Movements in long-term unemployment (LTU) exhibit a substantial cyclical component. I develop a business cycle model featuring labor market frictions and skill loss during unemployment to capture various stylized facts about the cyclical behavior of long-term unemployment. I find that the skill loss mechanism helps reproduce negative duration dependence, high persistence in unemployment and output, volatility patterns across macroeconomic variables and the behavior of the incidence of LTU around business cycle turning points. Optimal monetary policy in the presence of skill loss during unemployment calls for a softer reaction to inflation after productivity shocks. The monetary authority accepts more inflation in order to avoid high skill loss during unemployment which would reduce production and hence consumption possibilities.
Authors Kienzler, Daniel
Language English
Keywords Long-term unemployment, business cycle, optimal monetary policy
Subjects economics
HSG Classification contribution to scientific community
Refereed No
Date 2012
Publisher School of Finance Working Paper Series
Place of Publication St. Gallen
Series Name School of Finance Working Paper Series
Number 12/5
Depositing User Dipl.oec. Daniel Kienzler
Date Deposited 22 Oct 2012 14:39
Last Modified 20 Jul 2022 17:13


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Kienzler, Daniel: Cyclical Long-term Unemployment, Skill Loss, and Monetary Policy. School of Finance Working Paper Series, 2012, 12/5.

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