Abstract
What causes cyclical unemployment; sectoral shifts or aggregate demand shocks? Using a new index based on stock market prices, Loungani, Rush and Tave (1990) contend that sectoral shifts are the primary cause. Loungani, Rush and Tave's findings are suspect since they performed only half the necessary tests. Missing is the important test, described by Abraham and Katz (1986), of checking the index against job vacancy rates. The result of this test, a negative correlation between the stock market dispersion index and job vacancy rates, reverses Loungani, Rush and Tave's conclusions by indicating that cyclical unemployment is better explained by aggregate demand shocks.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
