MODELLING STRUCTURAL BREAKS IN THE US, UK AND JAPANESE UNEMPLOYMENT RATES

Guglielmo Maria Caporale and Luis Gil-Alana

Economics and Finance Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: In this paper we use a general procedure to detect structural breaks at unknown points in time which allows for different orders of integration and deterministic components in each subsample (see Gil-Alana, 2006). First, we extend it to the non-linear case, and show by means of Monte Carlo experiments that the procedure performs well in a non-linear environment. Second, we apply it to test for breaks in the unemployment rate in the US, the UK and Japan. Our results shed some light on the empirical relevance of alternative unemployment theories for these countries. Specifically, a structuralist interpretation appears more appropriate for the US and Japan, whilst a hysteresis model accounts better for the UK experience (and also for the Japanese one in the second subsanple). We interpret these findings in terms of different labour market features.

Pages: 33 pages
Date: 2006-04
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Working Paper: Modelling Structural Breaks in the US, UK and Japanese Unemployment Rates (2006)
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