Examining Eurozone crisis and unemployment relationship using VAR models.

Dimitrios DAPONTAS


This work examines the relation between the Eurozone crisis and unemployment. I deploy distributed lag model using two binary (Crisis and crisis in another country) along with three (Government spending to GDP, Labor freedom, and urbanization) variables working as a long term factors applied on a six countries set (Cyprus, Greece, Ireland, Italy, Portugal and Spain respectively) spanning the period January1995-May 2012 in order to explain the unemployment change using VAR models on monthly data in contrast to longer frequency analyses. This innovative approach is determining the optimal lag length between unemployment and crises determining the time between turbulence and its effect to unemployment. The results show that optimal lag varies among two and eight months. Two variables seem to have negative effect on unemployment (Government spending to GDP, labor freedom) and one positive (urbanization).

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Unemployment, crisis, contagion, labor legislation

JEL Codes

E24, J68, E30, F41


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