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Our results suggest that heightened policy uncertainty accounts for as much as two-thirds of the recent shift in the Beveridge curve. We estimate that uncertainty pushed the unemployment rate 1.3 percentage points higher by late 2012 than it would have been based on trends from the decade before the downturn. Without elevated uncertainty, unemployment would have been roughly 6.5% at the end of 2012, instead of the actual 7.8%.

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