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Unemployment And Hysteresis: A Nonlinear Unobserved Components Approach

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Author Info
Alicia Pérez Alon () (Universidad de Alicante)
Silvestro Di Sanzo (Universidad de Alicante)
Abstract

The aim of this paper is to find a possible hysteresis effect on unemployment rate series from Italy, France and the United States. We propose a definition of hysteresis taken from Physics which allows for nonlinearities. To test for the presence of hysteresis we use a nonlinear unobserved components model for unemployment series. The estimation methodology used can be assimilated into a threshold autoregressive representation in the framework of a Kalman filter. To derive an appropriate p-value for a test for hysteresis we propose two alternative bootstrap procedures: the first is valid under homoskedastic errors and the second allows for general heteroskedasticity. We investigate the performance of both bootstrap procedures using Monte Carlo simulation.

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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2005-34.

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Length: 28 pages
Date of creation: Dec 2005
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Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2005-34

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Related research
Keywords: Hysteresis Unobserved Components Model Threshold Autoregressive Models Nuisance parameters Bootstrap

Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution

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  1. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November. [Downloadable!] (restricted)
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  2. Miguel A. León-Ledesma & Peter McAdam, 2004. "Unemployment, Hysteresis And Transition," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(3), pages 377-401, 08. [Downloadable!] (restricted)
    Other versions:
  3. Hansen, Bruce E, 1992. "The Likelihood Ratio Test under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S61-82, Suppl. De. [Downloadable!] (restricted)
  4. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-30, March. [Downloadable!] (restricted)
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  5. Jaeger, Albert & Parkinson, Martin, 1994. "Some evidence on hysteresis in unemployment rates," European Economic Review, Elsevier, vol. 38(2), pages 329-342, February. [Downloadable!] (restricted)
  6. David H. Papell & Christian J. Murray & Hala Ghiblawi, 2000. "The Structure of Unemployment," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 309-315, May. [Downloadable!] (restricted)
  7. R Layard, 1990. "Understanding Unemployment," CEP Discussion Papers 04, Centre for Economic Performance, LSE.
  8. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
    Other versions:
  9. Hansen, Bruce E, 1996. "Erratum: The Likelihood Ratio Test under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(2), pages 195-98, March-Apr. [Downloadable!] (restricted)
    Other versions:
  10. Dale T. Mortensen, 1988. "The Persistence and Indeterminacy of Unemployment in Search Equilibrium," Discussion Papers 810, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
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