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Unemployment Rate Hysteresis and the Great Recession: Exploring the Metropolitan Evidence

Giorgio Canarella, Stephen Miller () and Stephen Pollard
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Stephen Pollard: Department of Economics, California State University, Los Angeles

No 1403, Working Papers from University of Nevada, Las Vegas , Department of Economics

Abstract: This paper explores the mean-reverting behavior of the unemployment rate using monthly geographically disaggregated data for the period 1991:01 through 2012:02. We apply both standard unit-root tests and tests that allow for one and two structural breaks in the mean. We find evidence that favors both unit-root and stationary processes. No series exhibits stationarity around a constant mean, which does not support the traditional natural-rate hypothesis, but about half of the series exhibit stationarity around a shifting mean. For these series, we find that the break occurs at the Great Recession. To complement the unit-root analysis, we also examine the behavior of the series using the Bai and Perron methods to detect multiple regimes at unknown points of time. We find that the Great Recession also altered the persistence of the unemployment rate series over the identified regimes. In general, the values of the estimated persistence within regimes decrease between those regimes, implying faster absorption of shocks later in the sample period.

Keywords: structural break tests; hysteresis; Great Recession; unit root; MSA unemployment rate; mean reversion (search for similar items in EconPapers)
JEL-codes: C22 E24 R10 R23 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2014-12
New Economics Papers: this item is included in nep-mac
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http://web.unlv.edu/projects/RePEc/pdf/1403.pdf First version, 2014 (application/pdf)
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Related works:
Journal Article: Unemployment rate hysteresis and the great recession: exploring the metropolitan evidence (2019) Downloads
Working Paper: Unemployment Rate Hysteresis and the Great Recession: Exploring the Metropolitan Evidence (2017)
Working Paper: Unemployment Rate Hysteresis and the Great Recession: Exploring the Metropolitan Evidence (2013) Downloads
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