A Stock-Flow Accounting Model of the Labor Market: An Application to Israel

The paper utilizes a theoretical stock-flow accounting model of the labor market, similar toBlanchard and Diamond (1989). Identifying restrictions are derived from the theoretical modeland are imposed on a SVAR system. The estimation allows for decomposing fluctuations to theircyclical and structural components. The model is applied to the Israeli economy. The estimatessuggest that non-cyclical factors account for at least half of the decline of the unemployment rateduring the period between 2004-Q1, when unemployment peaked at 10.9 percent, and 2011-Q4,when it marked a trough at 5.4 percent; suggesting a shift inward of the Beveridge curve.