UNEMPLOYMENT HYSTERESIS IN PIIGS COUNTRIES: A NEW TEST WITH BOTH SHARP AND SMOOTH BREAKS

Jing-Ping Li (), Omid Ranjbar () and Tsangyao Chang
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Jing-Ping Li: Department of Finance and Banking, Shanxi University of Finance & Economics, Shanxi, China

The Singapore Economic Review (SER), 2017, vol. 62, issue 05, 1165-1177

Abstract: In this empirical study, we apply the Panel stationary test with both sharp and smooth breaks to re-examine the hysteresis hypothesis of unemployment for five high-debt countries, Portugal, Ireland, Italy, Greece and Spain (PIIGS) from 1960 to 2011. We find that our proposed model has greater power than a linear method if the true data-generating process of unemployment is a stationary, non-linear process of unknown form with structural changes. Hysteresis in unemployment is confirmed for all PIIGS countries when traditional unit root tests are employed; however, hysteresis in unemployment is confirmed only for Greece when our proposed Panel stationary test with both sharp and smooth breaks is utilized.

Keywords: Hysteresis in unemployment; PIIGS countries; Stationary test; sharp and smooth breaks; Fourier function (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S0217590815500782

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