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Non-Linearity in the Canadian and US Labour Market: Univariate and Multivariate Evidence from a battery of tests

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  • Theodore Panagiotidis

    ()
    (Dept of Economics Univ. of Loughborough)

  • Gianluigi Pelloni

    ()
    (University of Bologna)

Abstract

The non-linearity of macroeconomic processes is becoming an increasingly important issue both at theoretical and empirical level. This trend holds for labour market variables as well. Reallocation theory of unemployment relies on non-linearities. At the same time there is mounting empirical evidence of business cycles asymmetries. Thus the assumption of linearity /non-linearity becomes crucial for the corroboration of labour market theories. This paper turns on the microscope on the assumption of linearity and investigates the presence of asymmetries on aggregate and disaggregate labour market variables. The assumption of linearity is tested using five statistical tests for the US and Canadian unemployment rates, growth rates of the employment sectoral shares of construction, finance, manufacturing and trade sectors. An AR(p) model was used to remove any linear structure from the series. Evidence of non-linearity is found for the sectoral shares with all five statistical tests in the US case but not in the aggregate level. The results for Canada are not clear-cut. Evidence of unspecified non-linearity is found in the unemployment rate and in the sectoral shares. Overall important asymmetries are found in disaggregated labour market variables in the univariate setting. The linearity hypothesis was also examined in a multivariate framework. Evidence is provided that important asymmetries exist and a linear VAR cannot capture the dynamics of employment reallocation.

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Bibliographic Info

Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2005_8.

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Date of creation: Aug 2005
Date of revision: Aug 2005
Handle: RePEc:lbo:lbowps:2005_8

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Keywords: Non-linearity; Sectoral Shares.;

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References

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  1. Panagiotidis, Theodore & Pelloni, Gianluigi, 2003. "Testing for non-linearity in labour markets: the case of Germany and the UK," Journal of Policy Modeling, Elsevier, Elsevier, vol. 25(3), pages 275-286, April.
  2. Campbell, Jeffrey R. & Kuttner, Kenneth N., 1996. "Macroeconomic effects of employment reallocation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 44(1), pages 87-116, June.
  3. Barnett, William A. & Serletis, Apostolos, 2000. "Martingales, nonlinearity, and chaos," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 24(5-7), pages 703-724, June.
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  8. Pelloni, Gianluigi & Panagiotidis, Theodore, 2003. "Macroeconomic Effects of Reallocation Shock: A Generalished Impulse Response Function Analysis for Three European Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 18, pages 794-816.
  9. William A. Barnett & A. Ronald Gallant & Melvin J. Hinich & Jochen A. Jungeilges & Daniel T. Kaplan & Mark J. Jensen, 1996. "A Single-Blind Controlled Competition among Tests for Nonlinearity and Chaos," Econometrics, EconWPA 9602005, EconWPA, revised 20 Sep 1996.
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  12. Giovanni Gallipoli & Gianluigi Pelloni, 2008. "Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature," Working Paper Series, The Rimini Centre for Economic Analysis 27-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
  13. Frank, Murray & Sayers, Chera & Stengos, Thanasis, 1993. "Evidence concerning non-linear structure in Canadian provincial unemployment rates," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 4(2), pages 333-343, December.
  14. Gianluigi Pelloni & Wolfgang Polasek, 2000. "Macroeconomic Effects Of Sectoral Shocks In Us, Uk And Germany: A Bvar-Garch-M Approach," Computing in Economics and Finance 2000, Society for Computational Economics 253, Society for Computational Economics.
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  20. T. Panagiotidis & G. Pelloni & W. Polasek, 2003. "Macroeconomic Effects of Reallocation Shocks: A Generalised Impulse Reponse Function Analysis for Three European Countries," Working Papers 505, Dipartimento Scienze Economiche, Universita' di Bologna.
  21. Hinich , Melvin J. & Rothman, Philip, 1998. "Frequency-Domain Test Of Time Reversibility," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 2(01), pages 72-88, March.
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Cited by:
  1. Elena Olmedo, 2014. "Forecasting Spanish Unemployment Using Near Neighbour and Neural Net Techniques," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 43(2), pages 183-197, February.
  2. Theodore Panagiotidis & Gianluigi Pelloni, 2014. "Asymmetry and Lilien’s Sectoral Shifts Hypothesis: A Quantile Regression Approach," Working Paper Series, The Rimini Centre for Economic Analysis 15_14, The Rimini Centre for Economic Analysis.
  3. Giovanni Gallipoli & Gianluigi Pelloni, 2008. "Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature," Working Paper Series, The Rimini Centre for Economic Analysis 27-08, The Rimini Centre for Economic Analysis, revised Jan 2008.

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