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Unit Root Tests, Persistence, and the Unemployment Rate of The U.S. States

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  • Diego Romero-Ávila

    ()
    (Department of Economics, Pablo de Olavide University)

  • Carlos Usabiaga

    ()
    (Department of Economics, Pablo de Olavide University)

Abstract

In this paper, we investigate the existence of infrequent shocks and the degree of persistence of U.S. state unemployment over the period 1976–2004. We first apply individual Lagrange multiplier (LM) unit root tests and fail to reject the hysteresis hypothesis in forty states. When two changes in level are incorporated, we again fail to reject the hysteresis hypothesis in forty states. Since individual unit root tests normally lack power, we employ the recently developed panel LM unit root tests with up to two changes in level. Only in this case are we able to reject the joint unit root hypothesis in favor of regime stationarity. Computation of half-lives through impulse-response functions indicates the high degree of persistence of U.S. state unemployment. These results contrast with the common belief among scholars that U.S. state unemployment is closer to the natural rate paradigm than to the hysteresis paradigm.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 73 (2007)
Issue (Month): 3 (January)
Pages: 698–716

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Handle: RePEc:sej:ancoec:v:73:3:y:2007:p:698-716

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Cevik, Emrah Ismail & Dibooglu, Sel, 2013. "Persistence and non-linearity in US unemployment: A regime-switching approach," Economic Systems, Elsevier, Elsevier, vol. 37(1), pages 61-68.
  2. De-Chih Liu, 2011. "Hysteresis Hypothesis in Job Creation and Destruction: Evidence from the U.S," Annals of Economics and Finance, Society for AEF, vol. 12(2), pages 389-409, November.
  3. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2013. "Unemployment Rate Hysteresis and the Great Recession: Exploring the Metropolitan Evidence," Working papers, University of Connecticut, Department of Economics 2013-19, University of Connecticut, Department of Economics.
  4. Fosten, Jack & Ghoshray, Atanu, 2011. "Dynamic persistence in the unemployment rate of OECD countries," Economic Modelling, Elsevier, Elsevier, vol. 28(3), pages 948-954, May.
  5. 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.

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