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Financial system stress and unemployment in industrial countries

Financial system stress and unemployment in industrial countries Purpose – This paper aims to analyze how financial system turmoil affected unemployment in industrial countries during the period 1982 to 2003. Design/methodology/approach – The paper uses annual data on 17 industrial countries. It employs the International Monetary Fund's financial stress index and a large number of controls. Findings – The paper finds that, during the sample period, financial market turmoil had only moderate adverse effects on unemployment. Stress in the banking sector and stress in foreign exchange markets were particularly likely to increase unemployment, although the relevant effects were modest too. Turmoil in securities markets affected unemployment only slightly. The results are robust to variations in specification. Originality/value – While previous papers only look at a small number of banking crises, this paper's sample includes crises in all major areas of the financial sector. Furthermore, whereas previous papers cover only major crises, it additionally takes both minor crises and periods of relative calm into account. Finally, this paper is the first to statistically control for the impact of all major determinants of labor market performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Financial system stress and unemployment in industrial countries

Journal of Economic Studies , Volume 38 (5): 24 – Sep 27, 2011

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
0144-3585
DOI
10.1108/01443581111161788
Publisher site
See Article on Publisher Site

Abstract

Purpose – This paper aims to analyze how financial system turmoil affected unemployment in industrial countries during the period 1982 to 2003. Design/methodology/approach – The paper uses annual data on 17 industrial countries. It employs the International Monetary Fund's financial stress index and a large number of controls. Findings – The paper finds that, during the sample period, financial market turmoil had only moderate adverse effects on unemployment. Stress in the banking sector and stress in foreign exchange markets were particularly likely to increase unemployment, although the relevant effects were modest too. Turmoil in securities markets affected unemployment only slightly. The results are robust to variations in specification. Originality/value – While previous papers only look at a small number of banking crises, this paper's sample includes crises in all major areas of the financial sector. Furthermore, whereas previous papers cover only major crises, it additionally takes both minor crises and periods of relative calm into account. Finally, this paper is the first to statistically control for the impact of all major determinants of labor market performance.

Journal

Journal of Economic StudiesEmerald Publishing

Published: Sep 27, 2011

Keywords: Banking crises; Currency crises; Financial crises; Unemployment; Industrial countries

References