Hysteresis vs. Natural Rate of US Unemployment

Ka Ming Cheng (), Nazif Durmaz (), Hyeongwoo Kim () and Michael L. Stern ()

No auwp2011-01, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: This paper investigates the stochastic nature of the unemployment rate allowing for cross-section dependence from a panel of US state-level data. We employ the PANIC method to test the null of nonstationarity for the common and idiosyncratic components separately. We find significant evidence of a nonstationary common component when the data from the most recent recession are included. Even when stationarity is empirically supported, the bias-corrected half-life of the common component appears very long.

Keywords: Unemployment Rate; Natural Rate Hypothesis; Hysteresis; PANIC; Cross-Section Dependence (search for similar items in EconPapers)
JEL-codes: C23 J64 (search for similar items in EconPapers)
Date: 2011-01
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Journal Article: Hysteresis vs. natural rate of US unemployment (2012)
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