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Unemployment, hysteresis and transition

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Author Info
Miquel A. Leon-Ledesma () (University of Kent, Canterbury - Department of Economics, Keynes College, Kent CT2 7NP, United Kingdom.)
Peter McAdam () (European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany.)

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Abstract

We quantify the degree of persistence in unemployment rates of transition countries using a variety of methods benchmarked against the EU. In part of the paper, we work with the concept of linear "Hysteresis" as described by the presence of unit roots in unemployment. Since this is potentially a narrow definition, we also take into account the existence of structural breaks and non-linear dynamics in unemployment. Finally, we examine whether CEECs' unemployment presents features of multiple equilibria: if it remains locked into a new level whenever a structural change occurs. Our findings show that, in general, we can reject the unit root hypothesis after controlling for structural changes and business cycle effects, but we can observe the presence of a high and low unemployment equilibria. The speed of adjustment is faster for CEECs than the EU, although CEECs tend to move more frequently between equilibria. JEL Classification: E24; C22; C23.

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Paper provided by European Central Bank in its series Working Paper Series with number 234.

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Length: 49 pages
Date of creation: May 2003
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Handle: RePEc:ecb:ecbwps:20030234

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Related research
Keywords: Unemployment hysteresis unit root transition Markov switching.

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Marco Bianchi & Gylfi Zoega, 1998. "Unemployment persistence: does the size of the shock matter?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(3), pages 283-304. [Downloadable!]
  2. Arestis, Philip & Biefang-Frisancho Mariscal, Iris, 1999. "Unit roots and structural breaks in OECD unemployment," Economics Letters, Elsevier, vol. 65(2), pages 149-156, November. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kerstin Gerling & Hans Peter Grüner & Alexandra Kiel & Elisabeth Schulte, 2003. "Information acquisition and decision making in committees: A survey," Working Paper Series 256, European Central Bank. [Downloadable!]
    Other versions:
  2. Christian Dreger & Hans-Eggert Reimers, 2006. "Hysteresis and Persistence in the Course of Unemployment : The EU and US Experience," Discussion Papers of DIW Berlin 572, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  3. Alistair Dieppe & Jerome Henry & Peter Mc Adam, . "Labour market dynamics in the euro area: A model-based sensitivity analysis," Modeling, Computing, and Mastering Complexity 2003 09, Society for Computational Economics. [Downloadable!]
  4. William A. Barnett, 2003. "Aggregation-theoretic monetary aggregation over the Euro area; when countries are heterogeneous," Working Paper Series 260, European Central Bank. [Downloadable!]
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  5. Alessandro Calza & João Sousa, 2003. "Why has broad money demand been more stable in the Euro area than in other economies? A literature review," Working Paper Series 261, European Central Bank. [Downloadable!]
  6. Matteo Lanzafame, 2006. "The Nature of Regional Unemployment in Italy," ERSA conference papers ersa06p155, European Regional Science Association. [Downloadable!]
    Other versions:
  7. Raurich, Xavier & Sala, Hector & Sorolla, Valeri, 2004. "Unemployment, Growth and Fiscal Policy: New Insights on the Hysteresis Hypothesis," IZA Discussion Papers 1127, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  8. Marco Catenaro & Jean-Pierre Vidal, 2003. "Implicit tax co-ordination under repeated policy interactions," Working Paper Series 259, European Central Bank. [Downloadable!]
  9. Yunus Aksoy & Miguel A. Leon-Ledesma, 2007. "Non-linearities and Unit Roots in G7 Macroeconomic Variables," Birkbeck Working Papers in Economics and Finance 0710, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
    Other versions:
  10. Ralph Süppel, 2003. "Comparing economic dynamics in the EU and CEE accession countries," Working Paper Series 267, European Central Bank. [Downloadable!]
  11. Alicia Pérez Alon & Silvestro Di Sanzo, 2005. "Unemployment And Hysteresis: A Nonlinear Unobserved Components Approach," Working Papers. Serie AD 2005-34, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  12. Claus Brand & Hans-Eggert Reimers & Franz Seitz, 2003. "Forecasting real GDP: What role for narrow money?," Working Paper Series 254, European Central Bank. [Downloadable!]
  13. Mariam Camarero & Josep Lluis Carrion Silvestre & Cecilio Tamarit, 2005. "Unemployment dynamics and NAIRU estimates for CEECs : A univariate approach," Working Papers in Economics 131, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
  14. Annick Bruggeman & Paola Donati & Anders Warne, 2003. "Is the demand for Euro area M3 stable?," Working Paper Series 255, European Central Bank. [Downloadable!]
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