We want to estimate the effect of crises on a country's unemployment rate and distinguish the strength of this effect according to the debt level in a country (i.e. via the interaction effect crisis x debt level). We also control for country fixed effects and time fixed effects and a bunch of control variables.

However, we have the problem that the crises a) probably have a delayed effect on the unemployment and b) that the crises themselves may last for a longer period of time. We are planning a dynamic panel model. How do we need to specify this in order to address the two problems mentioned above? Is it sufficient to include the lags of the crises in the model?

  • 2
    $\begingroup$ If you are looking at the current crisis, a further issue is that "unemployment" has a specific definition of not working, looking for work and available for work. But as a result of lockdown and furlough there now are many more people who are not working but are not looking for work than is usual in an economic crisis. A normal crisis has discouraged workers who might fall into this category, but the current situation covers many more who are not discoraged $\endgroup$
    – Henry
    Jul 16, 2020 at 15:32
  • 1
    $\begingroup$ @Henry Thank you for your comment. Yes, this is correct, but we are not looking at the current crisis. $\endgroup$
    – R-User
    Jul 16, 2020 at 15:39


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.