Hysteresis in West German Unemployment Reconsidered

Michael Reutter

No 240, CESifo Working Paper Series from CESifo

Abstract: The view that high unemployment in West Germany and other European countries is caused by a path dependence effect - or "hysteresis" effect - is quite popular among economists. However, because of an identification problem, much of the empirical evidence for this hypothesis is not fu lly convincing. This paper suggests a testing procedure that overcomes this problem. It is argued that in a cointegration framework it is reasonable to define hysteresis as the absence of weak exogeneity of the explanatory variables. Building on a cointeg ration model of the employment rate in West Germany, I find only weak evidence for hysteresis.

Keywords: Cointegration; hysteresis; trade unions; unemployment (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_240

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