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Is hysteresis important for U.S. unemployment?

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  • John M. Roberts
  • Norman J. Morin

Abstract

We look for evidence of "hysteresis" in the U.S. unemployment rate - that is, that current labor market outcomes affect the future equilibrium level of the unemployment rate. We first examine (using a variety of econometric tests for unit roots) whether the unemployment rate tends to come back to a long-run average over time. On balance, our results suggest that the unemployment rate tends to return to a long-run value, ruling out the possibility of permanent hysteresis. We look for evidence of temporary hysteresis by examining whether lagged unemployment enters a standard Phillips-curve model of U.S. inflation. We find week evidence in support of temporary hysteresis, but the effect is not large, suggesting that hysteresis is not very important for U.S. unemployment.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-56.

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Date of creation: 1999
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Handle: RePEc:fip:fedgfe:1999-56

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Keywords: Unemployment ; Labor market;

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References

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Citations

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Cited by:
  1. Charles A. Fleischman & Joshua Gallin, 2001. "Employment persistence," Finance and Economics Discussion Series 2001-25, Board of Governors of the Federal Reserve System (U.S.).
  2. Lawrence Huiyan Zhang, 2001. "Sacrifice Ratios with Long-Lived Effects," Economics Working Paper Archive 446, The Johns Hopkins University,Department of Economics.
  3. Clemente, Jesus & Lanaspa, Luis & Montañés, Antonio, 2002. "The unemployment structure of the US States," ERSA conference papers ersa02p081, European Regional Science Association.
  4. Heyer, E. & Le Bihan, H. & Lerais, F., 1999. "Relation de Phillips, boucle prix-salaire : une estimation par la méthode de Johansen," Documents de Travail de l'OFCE 1999-01, Observatoire Francais des Conjonctures Economiques (OFCE).
  5. Mariam Camarero & Josep Lluís Carrion-i-Silvestre & Cecilio Tamarit, 2004. "Testing for hysteresis in unemployment in OECD countries. New evidence using stationarity panel tests with breaks†," Economic Working Papers at Centro de Estudios Andaluces 2004/40, Centro de Estudios Andaluces.
  6. Camarero, Mariam & Tamarit, Cecilio, 2004. "Hysteresis vs. natural rate of unemployment: new evidence for OECD countries," Economics Letters, Elsevier, vol. 84(3), pages 413-417, September.

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