Sectoral Transformation, the Natural Rate of Unemployment and the Dutch Disease

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This paper studies the impact of structural transformation and terms of trade booms on unemployment. To this end we set up and estimate an open economy model with a frictional labour market allowing for terms of trade booms and an ongoing process of structural transformation. The model is estimated by full information methods on 10 observables and then used to decompose unemployment dynamics into three forces: i) structural transformation, ii) terms of trade booms and iii) business cycles shocks. Structural transformation slowly increases the share of employment in the non-tradable sector and lowers the rate of unemployment. A terms of trade boom also increases the share of the non-tradable sector but increases the rate of unemployment. Variance decompositions reveal that structural transformation gradually changes the drivers of the business cycle.

About the presenter's visit

Prof Mariano Kulish will be visiting the School of Economics on Friday 3^rd June 2022.  While here he will be using room 520A, Level 5, Colin Clark Building.  If you would like to meet with Prof Mariano or have lunch with him please contact Dr Andres Bellofatto who will be his host while at The University of Queensland. Dr Andres Bellofatto can be contacted on a.bellofatto@uq.edu.au.