A Markov-Switching Model of the Unemployment Rate: Working Paper 2022-05

Congressional Budget Office

No 57582, Working Papers from Congressional Budget Office

Abstract: The unemployment rate has asymmetric dynamics: It increases rapidly in recessions and falls gradually in expansions. The Congressional Budget Office developed a Markov-switching model to help incorporate these dynamics into macroeconomic projections and cost estimates that require simulations of the national unemployment rate. The model produces simulations that match observed asymmetric business-cycle dynamics at a rate consistent with historical data. I also show that indirect duration dependence, in which transition probabilities are a function of the unemployment gap,

JEL-codes: C22 C24 C53 E24 E32 (search for similar items in EconPapers)
Date: 2022-03-28
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-ore
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