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Hysteresis vs. natural rate of US unemployment

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

Economic Modelling, 2012, vol. 29, issue 2, 428-434

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 first employ the PANIC method to identify the common and idiosyncratic components. Powerful recursive mean adjustment (RMA) methods are used to test for unit roots. 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, casting doubt on the usefulness of the natural rate hypothesis.

Keywords: Unemployment rate; Natural rate hypothesis; Hysteresis; PANIC; RMA; Cross-section dependence (search for similar items in EconPapers)
JEL-codes: C23 J64 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:2:p:428-434

DOI: 10.1016/j.econmod.2011.11.012

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