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Dilem Yıldırım () and Dilan Aydin ()
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Dilem Yıldırım: Department of Economics, Middle East Technical University, Ankara, Turkey

No 2102, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: This paper investigates the hypothesis of unemployment hysteresis for GIPS countries (Greece Ireland, Portugal, and Spain) over the period 1998(4)-2019(4). While most of the existing empirical studies assume constant order of integration for unemployment over the sample period, we consider the possibility that, like many macroeconomic variables, unemployment might display changes in persistence, which might result in potential switches between the natural rate and hysteresis hypotheses. In this respect, we adopt a multiple persistence change methodology. Our empirical results suggest that the structural natural rate (hysteresis) hypothesis is supported for Ireland (Portugal) over the entire sample without any change in persistence of the unemployment rate. For the cases of Greece and Spain, on the other hand, our results propose that unemployment is characterized by multiple changes in persistence with the observed dates for persistence changes coinciding with the Great Recession, the European Sovereign debt crisis, and the deepening of economic and labor market reforms launched to retrain the impact of the crises in those countries.

Keywords: Unemployment; Persistence; Hysteresis; Structural changes; GIPS countries (search for similar items in EconPapers)
JEL-codes: C12 C22 E24 G01 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2021-04, Revised 2021-04
New Economics Papers: this item is included in nep-eec and nep-mac
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