PATTERNS OF UNEMPLOYMENT DYNAMICS IN GERMANY

Abstract

Using a structural vector autoregressive (SVAR) model, this paper provides deeper insight into unemployment dynamics in Germany. We identify a technology shock and two policy shocks that play a central role in business cycle research. Accordingly, we enrich the discussion on the sources of unemployment dynamics by considering demand-side impulses. The worker reallocation process varies substantially with the identified shocks. The job-finding rate plays a larger role after a technology shock and a monetary policy shock, whereas the separation rate appears to be the dominant margin after a fiscal policy shock. Technology shocks turn out to be relatively important for variations in the transition rates. Regarding policy shocks, our results point toward fiscal interventions as a promising instrument but with several limitations.