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This paper sets out to find a shock propagation mechanism that could explain persistent unemployment rates in Germany. Our work is based on an “insider outsider” theoretical model, which constructs the dynamics that generate the unemployment rate and highlights the different economic shocks. We are especially interested in studying the effect of internal monetary shocks (domestic monetary policy shock) and external monetary shocks (shock due to an increase in the American interest rate) using the ARCH-M model. Our empirical findings show the extent of the effect of external shocks on the unemployment rate’s unconditional variance, which directly affects the unemployment rate in the mean equation. The crossed shock propagation mechanism, formalised by the ARCH-M model, explains the persistence of the unemployment rate by the persistence of volatility shocks, which are generated by external and internal shocks.