Persistence and stochastic convergence of euro area unemployment rates: evidence from LM and RALS-LM unit root tests with breaks
Irena Raguž Krištić (),
Lucija Rogić Dumančić () and
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Irena Raguž Krištić: Faculty of Economics and Business, University of Zagreb
Lucija Rogić Dumančić: Faculty of Economics and Business, University of Zagreb
No 1707, EFZG Working Papers Series from Faculty of Economics and Business, University of Zagreb
The goal of this paper is to determine if the euro area (EUA) accession and membership had a significant impact on the unemployment rates of the EUA countries. The hypothesis of the paper is that there is unemployment hysteresis and EUA accession thus contributed to the economic integration and convergence of the unemployment rates in the EUA. The paper employs LM and RALS-LM unit root tests with two breaks to analyze the persistence, test the stochastic convergence and locate structural break(s) in the seasonally adjusted quarterly unemployment rates, covering the period from 1995q1 to 2016q2. The most interesting results are that: (i) there are EUA-related down breaks in unemployment rates with hysteresis, (ii) EUA-related breaks are followed by the periods of convergence to the EUA11 average, (iii) crisis-related breaks are followed by the periods of divergence and (iv) the EUA membership is not a sufficient condition for stochastic convergence.
Keywords: Unemployment; Euro area; Hysteresis; Stochastic convergence; Unit root; Structural breaks (search for similar items in EconPapers)
JEL-codes: E24 F45 O52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zag:wpaper:1707
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