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Unemployment in the OECD since the 1960s. Do we really know?

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  • T. BERGER

    ()

  • G. EVERAERT

    ()

Abstract

Nickell, Nunziata and Ochel [Economic Journal, 2005] argue that unemployment rates cointegrate with labour market institutions in a panel of OECD countries. This paper reproduces their Maddala-Wu panel cointegration test and shows that this test is only valid when (i) the number of countries tends to infinity and (ii) the underlying country-specific cointegration tests are independent. Their finding of cointegration does not survive when small sample properties and heterogeneous cross-sectional dependencies are taken into account. This suggests that the estimated impact of institutions on unemployment is spurious.

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File URL: http://www.feb.ugent.be/nl/Ondz/wp/Papers/wp_06_425.pdf
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Bibliographic Info

Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 06/425.

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Length: 6 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:rug:rugwps:06/425

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Keywords: unemployment; panel cointegration; bootstrapping;

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  1. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
  2. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation for Research in Economics, Yale University.
  3. Engel, Charles, 2000. "Long-run PPP may not hold after all," Journal of International Economics, Elsevier, vol. 51(2), pages 243-273, August.
  4. Strauss, Jack & Yigit, Taner, 2003. "Shortfalls of panel unit root testing," Economics Letters, Elsevier, vol. 81(3), pages 309-313, December.
  5. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  6. Baltagi, Badi H. & Li, Qi, 1995. "Testing AR(1) against MA(1) disturbances in an error component model," Journal of Econometrics, Elsevier, vol. 68(1), pages 133-151, July.
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