We explain movements in the UV space, i.e. the relationship between stocks of unemployment and vacancies known as the Beveridge curve, in the Czech Republic during 1995-2004. While the Beveridge curve is described by labour market stocks, we explain shifts in the Beveridge curve using gross labour market flows by estimating the matching function. We interpret parameter changes in the matching function during the business cycle, distinguishing cyclical and structural changes in the unemployment rate. We find that labour market flows are very good coincidence predictors of turning points in the business cycle. We show that the Czech economy already suffers from the labour market hysteresis common in many other developed market economies in the EU.
Keywords: Beveridge curve, Czech Republic, matching function, panel data, structural unemployment.
Issued: August 2005
Published as: „ Structural and Cyclical Unemployment: What Can Be Derived from the Matching Function?", Finance a úvěr - Czech Journal of Economics and Finance, 57 (3-4), pp. 102-125, 2007.
Download CNB WP No. 2/2005
