The Stock Market and Unemployment : The Cross-Section Volatility Model on Swedish data

University essay from Uppsala universitet/Nationalekonomiska institutionen

Author: Gustaf Sundelius; [2006]

Keywords: ;

Abstract:

Ever since the evolvement of modern macroeconomics, theories without foundation in the

Keynesian view, such as Real Business Cycle (RBC) theories, have aimed for recognition.

The purpose of this paper is to examine whether the Cross-Section Volatility model (CSV), a

RBC-model developed by Laclair Brainard and David Cutler (1993) based on US data, holds

and demonstrates similar results applied on Swedish data. The CSV is constructed by

weighting volatility for a number of industry-indices in the stock market. Brainard and Cutler

(1993) find evidence that the CSV is an explanatory variable on US data for sectoral as well

as aggregate unemployment. The results of this paper cannot disclaim the findings of Brainard

and Cutler (1993) but rather suggest that the CSV-measure to a limited degree is an

explanatory variable to unemployment on Swedish data as well.

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