A Markov-switching structural vector autoregressive model of boom and bust in the Australian labour market

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Abstract

Major economic events, such as the global financial crisis, are episodes of identifiable duration that differ from other time periods. Using monthly data on the unemployment rate, labour force participation rate and employment for Australia for the period from 1978 to 2012, we estimate a Markov-switching SVAR model to examine the relationship between unemployment and labour force participation and the performance of the Australian labour market. Three distinct labour market regimes are identified. We find that the labour market switches between periods of low unemployment and high participation, prolonged periods of relative stability and short, sharp periods of high unemployment and low participation. A key finding is that, due to the behaviour of workers not in the labour force, the long-term effect of an upswing in labour hiring results in a lower unemployment rate and a lower labour force participation rate.

Original languageEnglish
Pages (from-to)1271-1299
Number of pages29
JournalEmpirical Economics
Volume49
Issue number4
DOIs
Publication statusPublished - 1 Dec 2015

Fingerprint

Vector Autoregressive Model
Markov Switching
Unemployment
labor force participation rate
unemployment
labor market
unemployment rate
participation
labor force participation
hiring
labor force
financial crisis
Markov Switching Model
Relative Stability
Financial Crisis
labor
worker
event
Switch
performance

Cite this

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A Markov-switching structural vector autoregressive model of boom and bust in the Australian labour market. / Gaston, Noel; Rajaguru, Gulasekaran.

In: Empirical Economics, Vol. 49, No. 4, 01.12.2015, p. 1271-1299.

Research output: Contribution to journalArticleResearchpeer-review

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