Norges Bank

Working Paper

Multiple unemployment equilibria: Do transitory shocks have permanent effects?

Qaisar Farooq Akram
Working Paper


We adapt the multiple equilibria approach to characterize the behaviour of Norwegian unemployment since 1972. This approach may be associated with unemployment hysteresis as a nonlinear phenomenon. In this nonlinear framework transitory shocks may cause a transition from one equilibrium to another and thus have permanent effects on economic activity. A Markov regime switching model and an LSTAR model are employed to take account of possible multiple equilibria and asymmetric responses to positive and negative shocks. The empirical results seem to support these contentions.

Classification: E24, C22, C5, E52.
Keywords and phrases: NAIRU, hysteresis, multiple unemployment equilibria, Markov regime switching model, STAR model.

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ISSN 1502-8143 (online)

Published 4 April 1999 12:11
Published 4 April 1999 12:11