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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 Springer 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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    Web page: http://www.springerlink.com/link.asp?id=112112

    Related research

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

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    References

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    1. Dick van Dijk & Timo Terasvirta & Philip Hans Franses, 2002. "Smooth Transition Autoregressive Models — A Survey Of Recent Developments," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 1-47.
    2. Massimiliano Marcellino & Grayham E. Mizon & Hans-Martin Krolzig, 2002. "A Markov-switching vector equilibrium correction model of the UK labour market," Empirical Economics, Springer, vol. 27(2), pages 233-254.
    3. Philip Rothman, . "Forecasting Asymmetric Unemployment Rates," Working Papers 9618, East Carolina University, Department of Economics.
    4. Marcelle Chauvet & Chinhui Juhn & Simon Potter, 2001. "Markov switching in disaggregate unemployment rates," Staff Reports 132, Federal Reserve Bank of New York.
    5. José Cancelo & Estefanía Mourelle, 2005. "Modeling Cyclical Asymmetries in European Imports," International Advances in Economic Research, Springer, vol. 11(2), pages 135-147, May.
    6. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
    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., vol. 7(S), pages S119-36, Suppl. De.
    8. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
    9. Skalin, Joakim & Teräsvirta, Timo, 1998. "Modelling asymmetries and moving equilibria in unemployment rates," Working Paper Series in Economics and Finance 262, Stockholm School of Economics, revised 05 Oct 1998.
    10. Eitrheim, Øyvind & Teräsvirta, Timo, 1995. "Testing the Adequacy of Smooth Transition Autoregressive Models," Working Paper Series in Economics and Finance 56, Stockholm School of Economics.
    11. n/a, 2001. "Balance of payments prospects in EMU," NIESR Discussion Papers 164, National Institute of Economic and Social Research.
    12. José Cancelo & Estefanía Mourelle, 2005. "Modeling Cyclical Asymmetries in GDP: International Evidence," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(3), pages 297-309, September.
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    Cited by:
    1. Aviral Tiwari, 2014. "Unemployment hysteresis in Australia: evidence using nonlinear and stationarity tests with breaks," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(2), pages 681-695, March.
    2. Lee, Cheng-Feng, 2010. "Testing for unemployment hysteresis in nonlinear heterogeneous panels: International evidence," Economic Modelling, Elsevier, vol. 27(5), pages 1097-1102, September.
    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, vol. 28(C), pages 72-84.

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