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The non-linear dynamics of output and unemployment in the U.S

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  • Filippo Altissimo

    (Research Department, Bank of Italy, and CEPR)

  • Giovanni L. Violante

    (Department of Economics, University College London, and CEPR)

Abstract

This paper studies the joint dynamics of U.S. output and unemployment rate in a non-linear VAR model. The non-linearity is introduced through a feedback variable that endogenously augments the output lags of the VAR in recessionary phases. Sufficient conditions for the ergodicity of the model, potentially applying to a larger class of threshold models, are provided. The linear specification is rejected in favour of our threshold VAR. However, in the estimation the feedback is found to be statistically significant only on unemployment, while it transmits to output through its cross-correlation. This feedback effect from recessions generates important asymmetries in the propagation of shocks, a possible key to interpret the divergence in the measures of persistence in the literature. The regime-dependent persistence also explains the finding that the feedback from recession exerts a positive effect on the long-run growth rate of the economy, an empirical validation of the Schumpeterian macroeconomic theories. Copyright © 2001 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 16 (2001)
Issue (Month): 4 ()
Pages: 461-486

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Handle: RePEc:jae:japmet:v:16:y:2001:i:4:p:461-486

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Citations

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Cited by:
  1. Ana Beatriz Galv�o & Michael Artis & Massimiliano Marcellino, 2007. "The transmission mechanism in a changing world," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 39-61.
  2. Bårdsen Gunnar & Hurn Stanley & McHugh Zöe, 2012. "Asymmetric Unemployment Rate Dynamics in Australia," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(1), pages 1-22, January.
  3. Cone, Thomas E., 2008. "Optimal information acquisition and monetary policy," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1370-1389, December.
  4. Zagler, Martin, 2003. "The Dynamics of Economic Growth and Unemployment in Major European Countries: Analysis of Okun´s Law," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 3(3).
  5. Patrick Francois & Huw Lloyd-Ellis, 2003. "Animal Spirits Through Creative Destruction," American Economic Review, American Economic Association, vol. 93(3), pages 530-550, June.
  6. Ulrich Woitek, 2004. "Real Wages and Business Cycle Asymmetries," CESifo Working Paper Series 1206, CESifo Group Munich.
  7. Costas Milas & Phil Rothman, 2005. "Multivariate STAR Unemployment Rate Forecasts," Econometrics 0502010, EconWPA.
  8. repec:ese:iserwp:2000-40 is not listed on IDEAS
  9. Oleg Korenok & Bruce Mizrach, 2004. "The Microeconomics of Macroeconomic Asymmetries: Sectoral Driving Forces and Firm Level Characteristics," Computing in Economics and Finance 2004 266, Society for Computational Economics.
  10. Elena Olmedo, 2014. "Forecasting Spanish Unemployment Using Near Neighbour and Neural Net Techniques," Computational Economics, Society for Computational Economics, vol. 43(2), pages 183-197, February.
  11. Jean-Yves Pitarakis, 2004. "Model Selection Uncertainty and Detection of Threshold Effecs," Econometrics 0409013, EconWPA.
  12. Stefano Puddu, 2013. "Real Sector and Banking System: Real and Feedback Effects. A Non-Linear VAR Approach," IRENE Working Papers 13-01, IRENE Institute of Economic Research.
  13. Francois, P. & Lloyd-Ellis, H., 2001. "Animal Spirits Meets Creative Destruction," Discussion Paper 2001-36, Tilburg University, Center for Economic Research.
  14. Yuan-Ming Lee & Kuan-Min Wang & T. Thanh-Binh Nguyen, 2008. "A Common-Use Proxy for Economic Performance: Application to Asymmetric Causality between the Stock Returns and Growth," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 7(2), pages 101-124, August.

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