Melbourne Institute Working Paper Series Database (1984 - 2010)

Melbourne Institute Working Paper No. 15/2010

Regional Beveridge Curves: A Latent Variable Approach

by

Robert Dixon, G. C. Lim and John Freebairn

Date:September 2010

Abstract:It is important to understand how labour markets in different regions are affected by 'common or national' shocks including national macroeconomic, monetary and fiscal policies. This paper applies a new econometric approach - involving an unobserved components model - to identify the direction and timing of the shifts in regional Beveridge Curves. The method allows for the presence of common national factor(s) and region specific factor(s) in the determination of activity in labour markets including regional specific loadings on the common factor. The method is applied to Australian data. The results show that equilibrium unemployment rate vary by region and over time. In terms of implications for policies to reduce unemployment, these results suggest a key potential role for regional policies.

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