Nonlinearities and Fractional Integration in the US Unemployment Rate
AbstractThis paper proposes a model of the US unemployment rate which accounts for both its asymmetry and its long memory. Our approach introduces fractional integration and nonlinearities simultaneously into the same framework, using a Lagrange multiplier procedure with a standard null-limit distribution. The empirical results suggest that the US unemployment rate can be specified in terms of a fractionally integrated process, which interacts with some nonlinear functions of labour-demand variables such as real oil prices and real interest rates. We also find evidence of a long-memory component. Our results are consistent with a hysteresis model with path dependency rather than a non-accelerating inflation rate of unemployment (NAIRU) model with an underlying unemployment equilibrium rate, thereby giving support to more activist stabilization policies. However, any suitable model should also include business cycle asymmetries, with implications for both forecasting and policy-making. Copyright Blackwell Publishing Ltd and the Department of Economics, University of Oxford 2007.
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Bibliographic InfoArticle provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.
Volume (Year): 69 (2007)
Issue (Month): 4 (08)
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- Caporale, Guglielmo Maria & Gil-Alana, Luis A., 2004. "Non-linearities and fractional integration in the US unemployment rate," HWWA Discussion Papers 259, Hamburg Institute of International Economics (HWWA).
- Guglielmo Maria Caporale & Luis A. Gil-Alana, 2004. "Non-Linearities And Fractional Integration In The Us Unemployment Rate," Economics and Finance Discussion Papers 04-17, Economics and Finance Section, School of Social Sciences, Brunel University.
- Luis A. Gil-Alana & Guglielmo M. Caporale, . "Nonlinearities and fractional integration in the US unemployment rate," Faculty Working Papers 18/06, School of Economics and Business Administration, University of Navarra.
- Guglielmo Maria Caporale & Luis A. Gil-Alana, 2005. "Non-Linearities And Fractional Integration In The Us Unemployment Rate," Economics and Finance Discussion Papers 05-17, Economics and Finance Section, School of Social Sciences, Brunel University.
- Guglielmo Maria Caporale & Luis A. Gil-Alana, 2004. "Non-Linearities And Fractional Integration In The Us Unemployment Rate," Public Policy Discussion Papers 04-17, Economics and Finance Section, School of Social Sciences, Brunel University.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
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