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A smooth-transition model of the Australian unemployment rate

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Author Info

  • Gunnar Bårdsen

    ()
    (Department of Economics, Norwegian University of Science and Technology)

  • Stan Hurn

    ()
    (School of Economics and Finance, Queensland University of Technology)

  • Zoë McHugh

    (School of Economics and Finance, Queensland University of Technology)

Abstract

Models of the aggregate unemployment rate have traditionally been estimated from structural models of the labour market or in a linear single-equation framework. However, theory as well as evidence suggest that the unemployment rate is asymmetric and should be modelled in a non-linear framework. In this paper the unemployment rate in Australia is modelled as a non-linear function of aggregate demand and real wages. Negative changes in aggregate demand cause the unemployment rate to rise rapidly, while real wage rigidity contributes its to slow adjustment back towards a lower level of unemployment. The model is developed by exploiting recent developments in automated model-selection procedures.

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Bibliographic Info

Paper provided by Department of Economics, Norwegian University of Science and Technology in its series Working Paper Series with number 1002.

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Length: 26 pages
Date of creation: 22 May 2002
Date of revision: 01 Jul 2003
Handle: RePEc:nst:samfok:1002

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Keywords: unemployment; non-linearity; dynamic modelling; aggregate demand; real wages;

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References

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  1. Philip Rothman, . "Forecasting Asymmetric Unemployment Rates," Working Papers 9618, East Carolina University, Department of Economics.
  2. Acemoglu, Daron & Scott, Andrew, 1994. "Asymmetries in the Cyclical Behaviour of UK Labour Markets," Economic Journal, Royal Economic Society, vol. 104(427), pages 1303-23, November.
  3. Randall E. Parker & Philip Rothman, . "The Current Depth of Recession and Unemployment Rate Forecasts," Working Papers 9729, East Carolina University, Department of Economics.
  4. Jeff Borland, 1997. "Unemployment in Australia-Prospects and Policies: An Overview," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 30(4), pages 391-404.
  5. Skalin, Joakim & Ter svirta, Timo, 2002. "Modeling Asymmetries And Moving Equilibria In Unemployment Rates," Macroeconomic Dynamics, Cambridge University Press, vol. 6(02), pages 202-241, April.
  6. Maurice Peat & Max Stevenson, 1994. "Asymmetry in the Business Cycle: Evidence from the Australian Labour Markets," Working Paper Series 37, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  7. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  8. repec:att:wimass:9520 is not listed on IDEAS
  9. Bodman, Philip M, 1998. "Asymmetry and Duration Dependence in Australian GDP and Unemployment," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 399-411, December.
  10. Le, Anh T & Miller, Paul W, 2000. "Australia's Unemployment Problem," The Economic Record, The Economic Society of Australia, vol. 76(232), pages 74-104, March.
  11. Goodridge, Stephen & Harding, Don & Lloyd, Peter, 1995. "The Long Term Growth In Unemployment," MPRA Paper 3706, University Library of Munich, Germany.
  12. Eitrheim, Øyvind & Teräsvirta, Timo, 1995. "Testing the Adequacy of Smooth Transition Autoregressive Models," Working Paper Series in Economics and Finance 56, Stockholm School of Economics.
  13. Guy Debelle & James Vickery, 1998. "The Macroeconomics of Australian Unemployment," RBA Annual Conference Volume, in: Guy Debelle & Jeff Borland (ed.), Unemployment and the Australian Labour Market Reserve Bank of Australia.
  14. Kurt Brännäs & Henry Ohlsson, 1999. "Asymmetric Time Series and Temporal Aggregation," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 341-344, May.
  15. Tom Valentine, 1993. "The Sources of Unemployment: A Simple Econometric Analysis," Working Paper Series 32, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  16. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
  17. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, vol. 89(2), pages 484-489, June.
  18. repec:cup:macdyn:v:6:y:2002:i:2:p:202-41 is not listed on IDEAS
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Cited by:
  1. Julie L. Hotchkiss & John C. Robertson, 2006. "Asymmetric labor force participation decisions over the business cycle: evidence from U.S. microdata," Working Paper 2006-08, Federal Reserve Bank of Atlanta.
  2. Kulaksizoglu, Tamer & Kulaksizoglu, Sebnem, 2009. "The U.S. Excess Money Growth and Inflation Relation in the Long-Run: A Nonlinear Analysis," MPRA Paper 23780, University Library of Munich, Germany.

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