Unemployment persistence in Italy. An econometric analysis with multivariate time varying parameter models

This paper investigates the causes of unemployment persistence in Italy, using aggregate quarterly data. We use as reference an insider-outsider model capable of generating hysteresis. In the sample period being analysed, deep structural modifications have affected the Italian economy. For this reason, we work with a time varying parameter reduced form model, experimenting alternative parameter evolution schemes. In this way we are able to describe the dynamic effects on employment, participation and real wages of several phenomena, such as changes in the monetary and fiscal policy indicators and variations in unemployment benefits and labour taxes.