Abstract: We devise a decomposition for the level of the unemployment rate that allows the assessment of the contributions of the various flow rates in the labor market over different time horizons. The decomposition is sufficiently broad so that the contributions of these factors can be computed for any future period chosen by the analyst. In particular, the decomposition allows one to recover the contributions of the flow rates in the long run as in the steady-state decomposition of Shimer (2012). We apply our methodology for data from the United States and Brazil. The results show that the relative contribution of the flows to the variance of the cyclical component of unemployment is sensitive to the time horizon of the projected unemployment rate. The changes in relative contributions of some flows are so prominent that their rankings change over time.
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janeiro 13, 2011