The Causes of Spanish Unemployment: A Structural VAR Approach

Abstract

In this paper, we review the main causes of Spanish unemployment and weight them by estimating a simple macroeconomic model using the structural VAR methodology. By using this methodology we associate different causes of unemployment with shocks of different nature which have long-lasting effects due to full hysteresis. We claim that such an extreme assumption on ?state dependency? is reasonable, at least as a local approximation, for the period and the economy at hand. Our results suggest that the combination of a plausible mixture of different types of shock and extreme persistence in their propagation mechanisms can satisfactorily explain the dismal performance of the Spanish labour market during the last two decades.