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Non-Linearities And Fractional Integration In The Us Unemployment Rate

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  • Guglielmo Maria Caporale

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  • Luis A. Gil-Alana

Abstract

This paper proposes a model of the US unemployment rate which accounts for both its asymmetry and its long memory. Our approach introduces fractional integration and nonlinearities simultaneously into the same framework (unlike earlier studies employing a sequential procedure), using a Lagrange Multiplier procedure with a standard null limit distribution. The empirical results suggest that the US unemployment rate can be specified in terms of a fractionally integrated process, which interacts with some non-linear functions of the labour demand variables (real oil prices and real interest rates). We also find evidence of a long-memory component. Our results are consistent with a hysteresis model with path dependency rather than a NAIRU model with an underlying unemployment equilibrium rate, thereby giving support to more activist stabilisation policies. However, any suitable model should also include business cycle asymmetries, with implications for both forecasting and policy-making.

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Bibliographic Info

Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Economics and Finance Discussion Papers with number 04-17.

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Length: 25 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:bru:bruedp:04-17

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Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

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