Long-Run Shifts of the Beveridge Curve and the Frictional Unemployment Rate in Australia

This paper examines the Beveridge Curve, the relationship between the unemployment and vacancy rates. Both variables are found to be non-stationary and not co-integrated which implies that the Beveridge Curve has been shifted over time by at least one non-stationary variable. We examine a number of shift variables which have been used in previous empirical work and find a number of co-integrating relationships one of which we identify as the Beveridge Curve. It is used (a) as a basis for the decomposition of changes in the unemployment rate over the sample period and (b) to compute the structural unemployment rate by setting the vacancy rate at the level at which output is at its potential.