Explaining European Unemployment: Testing the NAIRU Theory and a Keynesian Approach

2 Introduction 3 NAIRU vs. Keynes: conflicting theories of unemployment 4 Empirical work (review) 6 Econometric method 7 Testing the NAIRU story 8 Testing the Keynesian story 11 Combining NAIRU and Keynesian factors 12 Conclusion 14 Bibliography 15 Tables 17 Table 1. A NAIRU model 17 Table 2. A Keynesian model 18 Table 3. Unmployment regression: u = c + ∆ infl + rr + ud + tw + tot 19 Table 4. Unmployment regression: u = c + u-1 + ∆ infl + rr + ud + tw + tot 20 u = c + u(-1) 20 Table 5. Employment growth regression (gk and dz) SUR 21 Table 6. Unemployment: restricted SUR – LM, gK u(-1) 22 Table 7. EPG with ∆ LM and ACCU 23 Appendix Unit root tests 24 Unit root test for u24 24 Unit root tests for EPG 24 Data Appendix 24