Unemployment in the European Union: Institutions, Prices, and Growth

This paper presents a reappraisal of unemployment movements in the European Union. Our analysis is based on the chain reaction theory of unemployment, which focuses on (a) the interaction among labor market adjustment processes, (b) the interplay between these adjustment processes and the dynamic structure of labor market shocks, and (c) the interaction between the adjustment processes and economic growth. We divide the shocks into institutional variables, price variables, and growth drivers. Estimating a system of labor market equations for a panel of EU countries, we derive the dynamic unemployment responses to each shock. Our analysis permits us to distinguish between the short- and long-run effects of the shocks. Different shocks generate different degrees of “unemployment persistence” (responses to temporary shocks) and “unemployment responsiveness” (responses to permanent shocks). We find that the growth drivers play a dominant role in accounting for the main swings in EU unemployment.

Asymmetric space market adjustment in the London office market

Models of the City of London office market are extended by considering a longer time series of data, covering two cycles, and by explicit modeling of asymmetric rental response to supply and demand model. A long run structural model linking demand for office space, real rental levels and office-based employment is estimated and then rental adjustment processes are modeled using an error correction model framework. Adjustment processes are seen to be asymmetric, dependent both on the direction of the supply and demand shock and on the state of the rental market at the time of the shock. A complete system of equations is estimated: unit shocks produce oscillations but there is a return to a steady equilibrium state in the long run

Distant neighbours. Economic adjustment processes at the Finnish-Russian border

For decades, the closed East/West border was an effective barrier for cross-border interaction at a local and regional level. It was reflected, among other things, in production structures and settlement patterns in the border regions. Since around 1990, economic and other forms of cross-border linkages have been possible, and they have raised the issue about adjustment processes, that is, whether regional and local economic actors are able to utilise existing complementarities and create new ones, and how this will make itself felt in the roles of the border regions in the international division of labour. The paper investigates regional adjustment processes in the case of the Finnish-Russian border, which is characterised by one of the deepest socio-economic and cultural gaps in Europe. First, the reasons for the specialisation of the neighbouring regional economies under the period of the closed border are analysed. Against this background, the repercussions of the partial opening of the border are evaluated in relation to the other driving forces of their development trends in the 1990s. It is concluded that the regions on both sides have lagged behind their respective national averages, although border-related adjustment processes have had quite diverse economic impacts. In Finland, these impacts have remained relatively marginal in most border regions. In the Russian borderlands, some local and regional economies have undergone profound changes in their market orientation due to the proximity of the border; instead of being specialised producers for the Russian market, they are now locked in the international division of labour as economic peripheries.

Modelling nominal debt contracts and fixed rate debt

We provide a simple model of sticky nominal debt contracts and fixed rate debt that can easily be embedded in a dynamic general equilibrium framework. Once linearized, the debt process increases the order of autoregressive dynamics in the system by one; thus potentially introducing more complex adjustment processes

Labour Market Flexibility and Regional Unemployment Rate Dynamics: Spain (1980-1995)

This paper analyses the theoretical and empirical implications of the Chain Reaction Theory of unemployment movements on regional unemploment persistence and regional disparities. This is the first attempt to apply this theory to a regional context. The Chain Reaction Theory focuses on the interaction among labour market adjustment processes and the interplay of such processes and the dynamic structure of labour market shocks. Under this approach we may explain unemployment rate disparities between regions as the result of different responses to idyosincratic and aggregate shocks working their way through different labour market adjustment processes in each region. We test empirically this theory to the Spanish case with a regional dataset covering the 1980-2000 period. Our results show that the Chain Reaction Theory explains well the recent behaviour of Spanish regional disparities in unemployment.

Asymmetric Space Market Adjustment in the London Office Market

Models of the City of London office market are extended by considering a longer time series of data, covering two cycles, and by explicit modeling of asymmetric rental response to supply and demand model. A long run structural model linking demand for office space, real rental levels and office-based employment is estimated and then rental adjustment processes are modeled using an error correction model framework. Adjustment processes are seen to be asymmetric, dependent both on the direction of the supply and demand shock and on the state of the rental market at the time of the shock. A complete system of equations is estimated: unit shocks produce oscillations but there is a return to a steady equilibrium state in the long run.office market models, rental adjustment, asymmetric responce, vacancy rate

Globally and Universally Convergent Price Adjustment Processes

We discuss three processes of price adjustment, respectively proposed by Smale (1976), van der Laan and Talman (1987), and Kamiya (1990). The latter two processes are guaranteed to converge to a competitive equilibrium for a generic set of exchange economies for any initial price system and the former process for a generic set of exchange economies for any initial price system such that one of the prices is zero. The simplest way to describe these processes is by characterizing the path of prices that they generate. Convergence proofs then rely on results from differential topology and establish that these paths have a manifold structure. The van der Laan and Talman (1987) process was shown by Herings (1997) to exhibit global and universal convergence. The required tools, involving regular constraint sets and manifolds with generalized boundary, are explained in detail and can be fruitfully applied in other domains as well. The paper concludes with an overview of globally and universally convergent processes in other environments like production economies, economies with price rigidities, and normal-form games