02289cas a2200265 a 4500 AALejournalIMF018646 230101c9999 xx r poo 0 0eng d 5.00 USD 9781484367490 1018-5941 BD-DhAAL BD-DhAAL Di Bella, Gabriel. Is Unemployment on Steroids in Advanced Economies? / Gabriel Di Bella, Francesco Grigoli, Francisco Ramirez. Washington, D.C. : International Monetary Fund, 2018. 1 online resource (33 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Despite conventional macroeconomic theory is based on the idea that demand shocks can only have temporary effects on unemployment, several European economies display highly persistent unemployment dynamics. The theory of hysteresis challenges this view and points out that, under certain conditions, demand disturbances can have permanent effects. In this paper, we find strong empirical evidence of unemployment hysteresis in advanced economies since the 1990s. Relying on an identification scheme instigated by an insider/outsider model, we study the effects of demand shocks allowing for cross-country heterogeneous dynamics, and exploit such heterogeneity to investigate what institutional settings have the potential to soften or amplify the effects of demand shocks. Our results indicate that strengthening labor market institutions that promote a faster adjustment of real wages, removing disincentives for firms to hire and for workers to be employed, and improving the matching between labor supply and labor demand can lessen the effects of adverse demand shocks and lead to a faster reversion of unemployment rates to pre-shock levels. Mode of access: Internet Grigoli, Francesco. Ramirez, Francisco. IMF Working Papers; Working Paper ; No. 2018/169 Full text available on IMF http://elibrary.imf.org/view/journals/001/2018/169/001.2018.issue-169-en.xml IMF e-Library