Unemployment, hysteresis and transition

Miguel Leon-Ledesma and Peter McAdam ()

No 234, Working Paper Series from European Central Bank

Abstract: We quantify the degree of persistence in unemployment rates of transition countries using a variety of methods benchmarked against the EU. In part of the paper, we work with the concept of linear "Hysteresis" as described by the presence of unit roots in unemployment. Since this is potentially a narrow definition, we also take into account the existence of structural breaks and non-linear dynamics in unemployment. Finally, we examine whether CEECs' unemployment presents features of multiple equilibria: if it remains locked into a new level whenever a structural change occurs. Our findings show that, in general, we can reject the unit root hypothesis after controlling for structural changes and business cycle effects, but we can observe the presence of a high and low unemployment equilibria. The speed of adjustment is faster for CEECs than the EU, although CEECs tend to move more frequently between equilibria. JEL Classification: E24, C22, C23

Keywords: hysteresis; Markov Switching; transition; unemployment; unit root (search for similar items in EconPapers)
Date: 2003-05
Note: 50336
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Citations: View citations in EconPapers (18)

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Related works:
Journal Article: UNEMPLOYMENT, HYSTERESIS AND TRANSITION (2004)
Working Paper: Unemployment, Hysterisis and Transition (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2003234

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