The Nonlinear Dynamics of Output and Unemployment in the US

Filippo Altissimo and Giovanni Luca Violante ()

No 2475, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies the joint dynamics of US output and unemployment rates in a nonlinear VAR model. The nonlinearity is introduced through a feedback variable that endogenously augments the output lags of the VAR in recessionary phases. Sufficient conditions for the ergodicity of the model, potentially applying to a larger class of threshold models, are provided. The linear specification is severely rejected in favour of our threshold VAR. However, in the estimation the feedback is found to be statistically significant only on unemployment, while it transmits to output through its cross-correlation. This feedback effect from recessions generates important asymmetries in the propagation of shocks, a possible key to interpret the divergence in the measures of persistence existing in the literature. The regime-dependent persistence also explains the finding that the feedback from recession exerts a positive effect on the long-run growth rate of the economy, an empirical validation for the Schumpeterian macroeconomic theories.

Keywords: Ergodicity; Impulse Response Function; Long-Run Effect of Recessions; Nonlinearity; Persistence; Threshold VAR (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2000-06
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP2475.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: The non-linear dynamics of output and unemployment in the U.S (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:2475

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP2475.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Series data maintained by ().