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Working Paper
Business Cycles and Low-Frequency Fluctuations in the US Unemployment Rate
I show that business cycles can generate most of the low-frequency movements in the unemployment rate. First, I provide evidence that the unemployment rate is stationary, while its flows have unit roots. Then, I model the log unemployment rate as the error correction term of log labor flows in a vector error correction model (VECM) with intercepts that change over the business cycle. Feeding historical expansions and recessions into the VECM generates large low-frequency movements in the unemployment rate. Frequent recessions from the late 1960s to the early 1980s interrupt labor market ...