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Unemployment, Hysteresis And Transition

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  • Miguel A. León-Ledesma
  • Peter McAdam

Abstract

In this paper, we quantify the degree of persistence in the unemployment rates of transition countries using a variety of methods benchmarked against the EU. Initially, we work with the concept of linear 'Hysteresis' as described by the presence of unit roots in unemployment as in most empirical research on this area. Given that this is potentially a narrow definition, we also take into account the existence of structural breaks and nonlinear dynamics in unemployment. Finally, we examine whether CEECs' unemployment presents features of multiple equilibria, that is, if it remains locked into a new level whenever some structural change or sufficiently large shock occurs. Our findings show that, in general, we can reject the unit-root hypothesis after controlling for structural changes and business-cycle effects, but we can observe the presence of a high and low unemployment equilibria. The speed of adjustment is faster for CEECs than the EU, although CEECs tend to move more frequently between equilibria. Copyright (c) Scottish Economic Society 2004.

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Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 51 (2004)
Issue (Month): 3 (08)
Pages: 377-401

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Handle: RePEc:bla:scotjp:v:51:y:2004:i:3:p:377-401

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  1. Marco Bianchi & Gylfi Zoega, 1996. "Unemployment persistence: Does the size of the shock matter?," Bank of England working papers 50, Bank of England.
  2. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  3. Blanchard, Olivier Jean & Aghion, Philippe, 1994. "On the Speed of Transition in Central Europe," Scholarly Articles 4481322, Harvard University Department of Economics.
  4. Arestis, Philip & Biefang-Frisancho Mariscal, Iris, 1999. "Unit roots and structural breaks in OECD unemployment," Economics Letters, Elsevier, vol. 65(2), pages 149-156, November.
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