Hysteresis in unemployment? Evidence from linear and nonlinear unit root tests and tests with non-normal errors

Ming Meng (), Mark Strazicich () and Junsoo Lee ()
Additional contact information
Ming Meng: Fifth Third Bank

Empirical Economics, 2017, vol. 53, issue 4, No 4, 1399-1414

Abstract: Abstract Hysteresis implies that shocks to unemployment have permanent effects. In this paper, we undertake a robust examination of the hysteresis hypothesis for 14 OECD countries by utilizing both linear and nonlinear unit root tests. After performing several linear unit root tests, we employ unit root tests with structural breaks and a Fourier test that allows for unknown breaks and nonlinear functional forms. To further examine the robustness of our findings, we additionally utilize tests that consider non-normal errors. Testing is undertaken using quarterly data for the time period 1983Q1–2013Q3. Overall, we find support for unit root hysteresis in 4 of the 14 countries, the traditional natural rate hypothesis in 3 countries, and the structuralist hypothesis (a natural rate with structural breaks) in 7 countries. In sum, we find that shocks to unemployment have permanent effects in 11 of the 14 countries, while the permanent effects are most often infrequent.

Keywords: Unemployment; Hysteresis; Unit root test; Structural breaks; Fourier function; RALS (search for similar items in EconPapers)
JEL-codes: C22 E24 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://link.springer.com/10.1007/s00181-016-1196-z Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
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: https://EconPapers.repec.org/RePEc:spr:empeco:v:53:y:2017:i:4:d:10.1007_s00181-016-1196-z

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-016-1196-z

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().