Modelling a Regime-Shifting New Zealand Beveridge Curve

This paper offers new insights into Beveridge curve analysis by modelling the vacancy-unemployment rate relationship within a Markov regime-switching environment in which the probability of curve-shifting is determined endogenously by shift factors. Shift factor candidates include structural factors (such as labour market participation and net migration) and cyclical variables (such as GDP growth and real interest rates). This approach enables us to estimate regime-specific parameters and the role played by shift factors in influencing the transition probabilities of switching between regimes. We illustrate our model with an application to New Zealand.