Matthews, KentMinford, PatrickNaraidoo, Ruthira2009-05-112009-05-112008-09Matthews, K, Minford, P & Naraidoo, R 2008, 'Vicious and virtuous circles: the political economy of unemployment in interwar UK and USA', European Journal of Political Economy, vol. 24, no. 3, pp. 605-614. [http://www.elsevier.com/wps/find/journaldescription.cws_home/505544/description]0176-268010.1016/j.ejpoleco.2008.04.005http://hdl.handle.net/2263/10005This paper develops a political economy model of multiple unemployment equilibria to provide a theory of an endogenous natural rate of unemployment for the UK and the US interwar period. The theory here sees the natural rate and the associated path of unemployment as a reaction to mainly demand shocks and the institutional structure of the economy. The channel through which these two forces feed on each other is a political economy process whereby voters with limited information on the natural rate react to shocks by demanding more or less social protection. The reduced form results confirm a pattern of unemployment behaviour in which unemployment moves between high and low equilibria in response to shocks.enElsevierEquilibrium unemploymentPolitical economyVicious and virtuous circlesBootstrappingForecastingUnemployment -- Econometric modelsPostprint Article