 Dynamic persistence in the unemployment rate of OECD countriesJack Fosten and Atanu Ghoshray Economic Modelling, 2011, vol. 28, issue 3, 948-954 Abstract: Previous studies use a variety of increasingly advanced unit root tests to determine whether Blanchard and Summers (1986) hysteresis theory of unemployment or the classical 'natural' rate theory of Friedman (1968) and Phelps (1967, 1968) is most relevant for a given country. However these tests all specify a unit root under the null hypothesis against a stationary alternative, such as in the paper by Lee and Chang (2008), making the two theories of unemployment mutually exclusive over the sample period. This paper moves away from this dichotomy by allowing for switches between hysteresis and the natural rate theory using the recently developed test of Leybourne, Kim and Taylor (2007). We find that in countries like the United Kingdom, the natural rate theory is detected in the post-World War Two period of stabilisation: the time leading up to the seminal works of Friedman and Phelps. Hysteresis is found over the First World War and Great Depression periods, and in the period from the 1970s; a time characterised by rising trade union power. We also compute numerical measures of persistence using grid-bootstrap estimates of the autoregressive parameter, following Hansen (1999). Keywords: Unemployment; Hysteresis; Unit; roots; Dynamic; persistence; Integrated; process; Stationarity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:28:y:2011:i:3:p:948-954 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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