Vicious and virtuous circles - The political economy of unemployment in interwar UK and USA

Kent Matthews, Patrick Minford, Ruthira Naraidoo

Research output: Journal PublicationArticlepeer-review

5 Citations (Scopus)

Abstract

This paper develops a political economy model of multiple unemployment equilibria to provide a theory of an endogenous natural rate of unemployment for the UK and the US interwar period. The theory here sees the natural rate and the associated path of unemployment as a reaction to mainly demand shocks 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 confirm a pattern of unemployment behaviour in which unemployment moves between high and low equilibria in response to shocks.

Original languageEnglish
Pages (from-to)605-614
Number of pages10
JournalEuropean Journal of Political Economy
Volume24
Issue number3
DOIs
Publication statusPublished - Sep 2008
Externally publishedYes

Keywords

  • Bootstrapping
  • Equilibrium unemployment
  • Forecasting
  • Political economy
  • Vicious and virtuous circles

ASJC Scopus subject areas

  • Economics and Econometrics
  • Political Science and International Relations

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