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Year 2020, Volume: 4 Issue: 7, 101 - 124, 31.12.2020

Abstract

References

  • Akay, H. K., Nargeleçekenler, M. & Yılmaz, F. (2011). Hysteresis in Unemployment: Evidence from 23 OECD Countries. Ekonomický časopis, 59(5), 488-505.
  • Akdoğan, K. (2017). Unemployment Hysteresis and Structural Change in Europe. Empirical Economics, 53(4), 1415-1440.
  • Bai, J. & Ng, S. (2004). A Panic Attack on Unit Roots and Cointegration. Econometrica, 72(4), 1127-1177.
  • Berger, D. (2012). Countercyclical Restructuring and Jobless Recoveries. 2012 Meeting Paper No. 1179, Society for Economics Dynamics.
  • Blanchard, O. J. & Summers, L. H. (1986). Hysteresis in Unemployment, NBER Working Paper No. 2035, National Bureau of Economic Research.
  • Choi, I. (2001). Unit Root Tests for Panel Data. Journal of International Money and Finance, 20(2), 249-272.
  • Clemente, J., Montanes, A. & Reyes, M. (1998). Testing for a Unit Root in Variables with a Double Change in the Mean. Economics Letters, 59(2), pp. 175-182.
  • Cross, R., Darby, J., Ireland, J. & Piscitelli, L. (1999). Hysteresis and Unemployment: A Preliminary Investigation. Computing in Economics and Finance 1999 No. 721, Society for Computational Economics.
  • deJong, D. N., Nankervis, J. C., Savin, N. E. & Whiteman, C. H. (1992). The Power Problems of Unit Root Tests in Time Series with Autoregressive Errors. Journal of Econometrics, 53(1-3), 323-343.
  • Dickey, D. A. & Fuller, W. A. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, 49(4), 1057-1072.
  • Ewing, J. A. (1981). Effects of Stress on the Thermoelectric Quality of Metals. Part 1. Proceedings of the Royal Society of London, London: Royal Society of London.
  • Fisher, R. A. (1932). Statistical Methods for Research Workers. 4th edition, Edinburgh: Oliver & Boyd.
  • Friedman, M. (1968). The Role of Monetary Policy. American Economic Review, 58(1), 1-17.
  • Galί, J. (2015). Hysteresis and the European Unemployment Problem Revisited. NBER Working Paper No. 21430, National Bureau of Economic Research.
  • Hadri, K. (2000). Testing for Stationarity in Heterogeneous Panel Data. Econometric Journal, 3(2), 148-161.
  • Hall, R. E. (2005). Employment Fluctuations with Equilibrium Wage Stickiness. American Economic Review, 95(1), 50-65.
  • Harris, R. & Tzavalis, E. (1999). Inference for Unit Roots in Dynamic Panels where the Time Dimension is Fixed. Journal of Econometrics, 91(2), 201-226.
  • Hlouskova, J. & Wagner, M. (2006). The Performance of Panel Unit Root and Stationary Tests: Results from a Large Scale Simulation Study. Econometric Reviews, 25(1), 85-116.
  • Im, K. S., Pesaran, M. H. & Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115(1), 53-74.
  • Jaimovich, N. & Siu, H. (2012). Job Polarization and Jobless Recoveries. NBER Working Paper No. 18334, National Bureau of Economic Research.
  • Kwiatkowski, D., Phillips, P. C. B., Schmidt, P. & Shin, Y. (1992). Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We that Economic Time Series Have a Unit Root? Journal of Econometrics, 54(1-3), 159-178.
  • Layard, R., Nickell, S. & Jackman, R. (1991). Unemployment: Macroeconomic Performance and the Labour Market. Oxford: Oxford University Press.
  • Leόn-Ledesma, M. A. (2000). Unemployment Hysteresis in the US and the EU: A Panel Data Approach. Studies in Economics No. 0006, School of Economics, University of Kent.
  • Leόn-Ledesma, M. A. & McAdam, P. (2004). Unemployment, Hysteresis and Transition. Scottish Journal of Political Economy, 51(3), 377-401.
  • Levin, A. Lin, C. F. & Chu, C. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties. Journal of Econometrics, 108(1), 1-24.
  • Lumsdaine, R. L. & Papell, D. H. (1997). Multiple Trend Breaks and the Unit-Root Hypothesis. The Review of Economics and Statistics, 79(2), 212-218.
  • Maddala, G. S. & Wu, S. (1999). A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test. Oxford Bulletin of Economics and Statistics, 61(S1), 631-652.
  • Mednik, M., Rodriguez, C. M. & Ruprah, I. J. (2012). Hysteresis in Unemployment: Evidence from Latin America. Journal of International Development, 24(4), 448-466.
  • Modigliani, F. (2003). The Keynesian Gospel According to Modigliani. The American Economist, 47(1), 3-24.
  • Newey, W. K. & West, K. D. (1987). A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix. Econometrica, 55(3), 703-708.
  • Phelps, E. S. (1972). Inflation Policy and Unemployment Theory: The Cost-Benefit Approach to Monetary Planning. New York: W. W. Norton & Company.
  • Phillips, P. C. B. & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75(2), 335-346. Røed, K. (1997). Hysteresis in Unemployment. Journal of Economic Surveys, 11(4), 389-418.
  • Sachs, J. D. (1986). High Unemployment in Europe: Diagnosis and Policy Implications. NBER Working Paper No. 1830, National Bureau of Economic Research.
  • Samuelson, P. A. (1965). Some Notions on Causality and Teleology in Economics. Cause and Effect, in Daniel Lerner (ed.), New York: The Free Press, 99-144.
  • Schwert, W. G. (1989). Tests for Unit Roots: A Monte Carlo Investigation. Journal of Business & Economic Statistics, 7(2), 147-159.
  • Shimer, R. (2012). Wage Rigidities and Jobless Recoveries. Journal of Monetary Economics, 59 (Supplement), S65-S77.
  • Song, F. & Wu, Y. (1998). Hysteresis in Unemployment: Evidence from OECD Countries. The Quarterly Review of Economics and Finance, 38(2), 181-192.
  • Waheed, M., Alam, T. & Ghauri, S. P. (2006). Structural Breaks and Unit Root: Evidence from Pakistani Macroeconomic Time Series. MPRA Paper No. 1797, Munich Personal RePEc Archive.
  • Wiczer, D. (2013). Long-Term Unemployment: Attached and Mismatched? 2013 Meeting Paper No. 1101, Society for Economic Dynamics.
  • Zivot, E. & Andrews, D. W. K. (1992). Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis. Journal of Business & Economic Statistics, 10(3), 251-270.

HYSTERESIS IN UNEMPLOYMENT: NEW EVIDENCE FROM 19 EURO AREA COUNTRIES

Year 2020, Volume: 4 Issue: 7, 101 - 124, 31.12.2020

Abstract

This paper utilizes the degree of permanent effects in unemployment rates using a wide array of unit-root testing methods for 19 Euro Area countries over the 1983M1-2019M7 period. First and foremost, we examine the theoretical context of linear hysteresis through the implementation of univariate unit-root tests. Since this may contain some potential issues, we also take into account the presence of structural breaks in unemployment. Moreover, we quantify the initial results within the context of panel unit-root tests whether the hysteresis effects in unemployment are still prevailing for the sample. Our findings show that, in general, we cannot reject the hysteresis hypothesis for the 19 Euro Area countries against the alternative of a natural rate even after controlling for structural breaks. The results are thus compatible with the views on the existence of path-dependence of steady-state equilibrium unemployment.

References

  • Akay, H. K., Nargeleçekenler, M. & Yılmaz, F. (2011). Hysteresis in Unemployment: Evidence from 23 OECD Countries. Ekonomický časopis, 59(5), 488-505.
  • Akdoğan, K. (2017). Unemployment Hysteresis and Structural Change in Europe. Empirical Economics, 53(4), 1415-1440.
  • Bai, J. & Ng, S. (2004). A Panic Attack on Unit Roots and Cointegration. Econometrica, 72(4), 1127-1177.
  • Berger, D. (2012). Countercyclical Restructuring and Jobless Recoveries. 2012 Meeting Paper No. 1179, Society for Economics Dynamics.
  • Blanchard, O. J. & Summers, L. H. (1986). Hysteresis in Unemployment, NBER Working Paper No. 2035, National Bureau of Economic Research.
  • Choi, I. (2001). Unit Root Tests for Panel Data. Journal of International Money and Finance, 20(2), 249-272.
  • Clemente, J., Montanes, A. & Reyes, M. (1998). Testing for a Unit Root in Variables with a Double Change in the Mean. Economics Letters, 59(2), pp. 175-182.
  • Cross, R., Darby, J., Ireland, J. & Piscitelli, L. (1999). Hysteresis and Unemployment: A Preliminary Investigation. Computing in Economics and Finance 1999 No. 721, Society for Computational Economics.
  • deJong, D. N., Nankervis, J. C., Savin, N. E. & Whiteman, C. H. (1992). The Power Problems of Unit Root Tests in Time Series with Autoregressive Errors. Journal of Econometrics, 53(1-3), 323-343.
  • Dickey, D. A. & Fuller, W. A. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, 49(4), 1057-1072.
  • Ewing, J. A. (1981). Effects of Stress on the Thermoelectric Quality of Metals. Part 1. Proceedings of the Royal Society of London, London: Royal Society of London.
  • Fisher, R. A. (1932). Statistical Methods for Research Workers. 4th edition, Edinburgh: Oliver & Boyd.
  • Friedman, M. (1968). The Role of Monetary Policy. American Economic Review, 58(1), 1-17.
  • Galί, J. (2015). Hysteresis and the European Unemployment Problem Revisited. NBER Working Paper No. 21430, National Bureau of Economic Research.
  • Hadri, K. (2000). Testing for Stationarity in Heterogeneous Panel Data. Econometric Journal, 3(2), 148-161.
  • Hall, R. E. (2005). Employment Fluctuations with Equilibrium Wage Stickiness. American Economic Review, 95(1), 50-65.
  • Harris, R. & Tzavalis, E. (1999). Inference for Unit Roots in Dynamic Panels where the Time Dimension is Fixed. Journal of Econometrics, 91(2), 201-226.
  • Hlouskova, J. & Wagner, M. (2006). The Performance of Panel Unit Root and Stationary Tests: Results from a Large Scale Simulation Study. Econometric Reviews, 25(1), 85-116.
  • Im, K. S., Pesaran, M. H. & Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115(1), 53-74.
  • Jaimovich, N. & Siu, H. (2012). Job Polarization and Jobless Recoveries. NBER Working Paper No. 18334, National Bureau of Economic Research.
  • Kwiatkowski, D., Phillips, P. C. B., Schmidt, P. & Shin, Y. (1992). Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We that Economic Time Series Have a Unit Root? Journal of Econometrics, 54(1-3), 159-178.
  • Layard, R., Nickell, S. & Jackman, R. (1991). Unemployment: Macroeconomic Performance and the Labour Market. Oxford: Oxford University Press.
  • Leόn-Ledesma, M. A. (2000). Unemployment Hysteresis in the US and the EU: A Panel Data Approach. Studies in Economics No. 0006, School of Economics, University of Kent.
  • Leόn-Ledesma, M. A. & McAdam, P. (2004). Unemployment, Hysteresis and Transition. Scottish Journal of Political Economy, 51(3), 377-401.
  • Levin, A. Lin, C. F. & Chu, C. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties. Journal of Econometrics, 108(1), 1-24.
  • Lumsdaine, R. L. & Papell, D. H. (1997). Multiple Trend Breaks and the Unit-Root Hypothesis. The Review of Economics and Statistics, 79(2), 212-218.
  • Maddala, G. S. & Wu, S. (1999). A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test. Oxford Bulletin of Economics and Statistics, 61(S1), 631-652.
  • Mednik, M., Rodriguez, C. M. & Ruprah, I. J. (2012). Hysteresis in Unemployment: Evidence from Latin America. Journal of International Development, 24(4), 448-466.
  • Modigliani, F. (2003). The Keynesian Gospel According to Modigliani. The American Economist, 47(1), 3-24.
  • Newey, W. K. & West, K. D. (1987). A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix. Econometrica, 55(3), 703-708.
  • Phelps, E. S. (1972). Inflation Policy and Unemployment Theory: The Cost-Benefit Approach to Monetary Planning. New York: W. W. Norton & Company.
  • Phillips, P. C. B. & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75(2), 335-346. Røed, K. (1997). Hysteresis in Unemployment. Journal of Economic Surveys, 11(4), 389-418.
  • Sachs, J. D. (1986). High Unemployment in Europe: Diagnosis and Policy Implications. NBER Working Paper No. 1830, National Bureau of Economic Research.
  • Samuelson, P. A. (1965). Some Notions on Causality and Teleology in Economics. Cause and Effect, in Daniel Lerner (ed.), New York: The Free Press, 99-144.
  • Schwert, W. G. (1989). Tests for Unit Roots: A Monte Carlo Investigation. Journal of Business & Economic Statistics, 7(2), 147-159.
  • Shimer, R. (2012). Wage Rigidities and Jobless Recoveries. Journal of Monetary Economics, 59 (Supplement), S65-S77.
  • Song, F. & Wu, Y. (1998). Hysteresis in Unemployment: Evidence from OECD Countries. The Quarterly Review of Economics and Finance, 38(2), 181-192.
  • Waheed, M., Alam, T. & Ghauri, S. P. (2006). Structural Breaks and Unit Root: Evidence from Pakistani Macroeconomic Time Series. MPRA Paper No. 1797, Munich Personal RePEc Archive.
  • Wiczer, D. (2013). Long-Term Unemployment: Attached and Mismatched? 2013 Meeting Paper No. 1101, Society for Economic Dynamics.
  • Zivot, E. & Andrews, D. W. K. (1992). Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis. Journal of Business & Economic Statistics, 10(3), 251-270.
There are 40 citations in total.

Details

Primary Language English
Subjects Economics
Journal Section Articles
Authors

Onur Özdemir 0000-0002-3804-0062

Publication Date December 31, 2020
Submission Date December 31, 2020
Acceptance Date January 1, 2021
Published in Issue Year 2020 Volume: 4 Issue: 7

Cite

APA Özdemir, O. (2020). HYSTERESIS IN UNEMPLOYMENT: NEW EVIDENCE FROM 19 EURO AREA COUNTRIES. International Journal of Entrepreneurship and Management Inquiries, 4(7), 101-124.

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