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Hysteresis vs. natural rate of US unemployment

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Author Info

  • Cheng, Ka Ming
  • Durmaz, Nazif
  • Kim, Hyeongwoo
  • Stern, Michael L.

Abstract

This paper investigates the stochastic nature of the unemployment rate allowing for cross-section dependence from a panel of US state-level data. We first employ the PANIC method to identify the common and idiosyncratic components. Powerful recursive mean adjustment (RMA) methods are used to test for unit roots. We find significant evidence of a nonstationary common component when the data from the most recent recession are included. Even when stationarity is empirically supported, the bias-corrected half-life of the common component appears very long, casting doubt on the usefulness of the natural rate hypothesis.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 29 (2012)
Issue (Month): 2 ()
Pages: 428-434

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Handle: RePEc:eee:ecmode:v:29:y:2012:i:2:p:428-434

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Unemployment rate; Natural rate hypothesis; Hysteresis; PANIC; RMA; Cross-section dependence;

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  1. Zhijie Xiao & Peter C.B. Phillips, 1997. "An ADF Coefficient Test for a Unit Root in ARMA Models of Unknown Order with Empirical Applications to the U.S. Economy," Cowles Foundation Discussion Papers 1161, Cowles Foundation for Research in Economics, Yale University.
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Cited by:
  1. Donald Freeman, 2012. "On (Not) Closing the Gaps: The Evolution of National and Regional Unemployment Rates by Race and Ethnicity," The Review of Black Political Economy, Springer, vol. 39(2), pages 267-284, June.
  2. Marcel Aloy & Gilles Dufrénot & Charles Lai Tong & Anne Péguin-Feissolle, 2012. "A Smooth Transition Long-Memory Model," AMSE Working Papers 1240, Aix-Marseille School of Economics, Marseille, France, revised Dec 2012.
  3. Partridge, Mark D. & Rickman, Dan S. & Olfert, M. Rose & Tan, Ying, 2012. "When spatial equilibrium fails: is place-based policy second best?," MPRA Paper 40270, University Library of Munich, Germany.
  4. Cevik, Emrah Ismail & Dibooglu, Sel, 2013. "Persistence and non-linearity in US unemployment: A regime-switching approach," Economic Systems, Elsevier, vol. 37(1), pages 61-68.
  5. Mark J. Holmes & Jesús Otero & Theodore Panagiotidis, 2013. "Modelling the Behaviour of Unemployment Rates in the US over Time and across Space," Working Paper Series 39_13, The Rimini Centre for Economic Analysis.
  6. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2013. "Unemployment Rate Hysteresis and the Great Recession: Exploring the Metropolitan Evidence," Working papers 2013-19, University of Connecticut, Department of Economics.

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