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Cyclical Asymmetries in Unemployment Rates: International Evidence

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  • José Cancelo

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    Abstract

    This paper investigates to what extent the observed nonlinearities in the unemployment rates of six major developed economies are the response to cyclical asymmetries. Two classes of models are compared: strict smooth transition autoregressions and models where the transition variable is GDP growth, which is considered a more direct indicator of the business cycle. The empirical evidence points out that nonlinearities in unemployment rates are induced by cyclical asymmetries. It is also found that in most countries the unemployment rate looks stationary and reverts to a long-run equilibrium rate in periods of normal growth, while in extreme cyclical situations it tends to become nonstationary as if each extreme cyclical episode had its own path of equilibrium. Copyright International Atlantic Economic Society 2007

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    Bibliographic Info

    Article provided by International Atlantic Economic Society in its journal International Advances in Economic Research.

    Volume (Year): 13 (2007)
    Issue (Month): 3 (August)
    Pages: 334-346

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    Handle: RePEc:kap:iaecre:v:13:y:2007:i:3:p:334-346

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    Keywords: Nonlinearity; STAR models; Business cycle; Unemployment; Unit roots; E32; E24; C52;

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    1. José Cancelo & Estefanía Mourelle, 2005. "Modeling Cyclical Asymmetries in GDP: International Evidence," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 33(3), pages 297-309, September.
    2. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(2), pages 307-28, April.
    3. n/a, 2001. "Balance of payments prospects in EMU," NIESR Discussion Papers, National Institute of Economic and Social Research 164, National Institute of Economic and Social Research.
    4. Skalin, Joakim & Ter svirta, Timo, 2002. "Modeling Asymmetries And Moving Equilibria In Unemployment Rates," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 6(02), pages 202-241, April.
    5. Dick van Dijk & Timo Terasvirta & Philip Hans Franses, 2002. "Smooth Transition Autoregressive Models — A Survey Of Recent Developments," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 21(1), pages 1-47.
    6. Hans-Martin Krolzig & Massimiliano Marcellino & Grayham E. Mizon, . "A Markov-Switching Vector Equilibrium Correction Model of the UK Labour Market," Working Papers 185, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
    8. Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, Elsevier, vol. 74(1), pages 59-75, September.
    9. Philip Rothman, . "Forecasting Asymmetric Unemployment Rates," Working Papers 9618, East Carolina University, Department of Economics.
    10. José Cancelo & Estefanía Mourelle, 2005. "Modeling Cyclical Asymmetries in European Imports," International Advances in Economic Research, Springer, Springer, vol. 11(2), pages 135-147, May.
    11. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, Elsevier, vol. 112(2), pages 359-379, February.
    12. Marcelle Chauvet & Chinhui Juhn & Simon Potter, 2001. "Markov switching in disaggregate unemployment rates," Staff Reports 132, Federal Reserve Bank of New York.
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    Cited by:
    1. Lee, Cheng-Feng, 2010. "Testing for unemployment hysteresis in nonlinear heterogeneous panels: International evidence," Economic Modelling, Elsevier, vol. 27(5), pages 1097-1102, September.
    2. Aviral Tiwari, 2014. "Unemployment hysteresis in Australia: evidence using nonlinear and stationarity tests with breaks," Quality & Quantity: International Journal of Methodology, Springer, Springer, vol. 48(2), pages 681-695, March.
    3. Lee, Cheng-Feng & Hu, Te-Chung & Li, Ping-Cheng & Tsong, Ching-Chuan, 2013. "Asymmetric behavior of unemployment rates: Evidence from the quantile covariate unit root test," Japan and the World Economy, Elsevier, Elsevier, vol. 28(C), pages 72-84.

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