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Hysteresis and Unemployment: a Preliminary Investigation

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  • Rod Cross

    ()
    (University of Strathclyde)

  • Julia Darby

    ()
    (University of Glasgow)

  • Jonathan Ireland

    ()
    (University of Strathclyde)

  • Laura Piscitelli

    ()
    (University of Strathclyde)

Abstract

This paper elucidates hysteresis using a simple model of market entry and exit. A procedure for calculating hysteresis indices for economic time series is outlined. Some preliminary results assess the explanatory power of hysteresis variables in determining the equilibrium rate of unemployment in the UK. We find that natural and "unnatural" variables are involved in a cointegrating vector for UK unemployment over the period 1959-1996. The natural variable is the replacement ratio. The "unnatural" variables are the hysteresis indices for the exchange rate, the real oil price, and the real interest rate.

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 1999 with number 721.

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Date of creation: 01 Mar 1999
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Handle: RePEc:sce:scecf9:721

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Postal: CEF99, Boston College, Department of Economics, Chestnut Hill MA 02467 USA
Fax: +1-617-552-2308
Web page: http://fmwww.bc.edu/CEF99/
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References

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  1. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56.
  2. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 195-246 National Bureau of Economic Research, Inc.
  3. Giavazzi, Francesco & Wyplosz, Charles, 1985. "The Zero Root Problem: A Note on the Dynamic Determination of the Stationary Equilibrium in Linear Models," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 353-57, April.
  4. Blanchard, Olivier J, 1986. "The Wage Price Spiral," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 543-65, August.
  5. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Working Papers 1950, National Bureau of Economic Research, Inc.
  6. Nickell, Stephen J, 1987. "Why Is Wage Inflation in Britain So High?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 103-28, February.
  7. Steven B. Kamin & Neil R. Ericsson, 1993. "Dollarization in Argentina," International Finance Discussion Papers 460, Board of Governors of the Federal Reserve System (U.S.).
  8. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, September.
  9. Rod Cross & Michael Grinfeld & Laura Piscitelli, 1999. "Hysteresis in Economic Systems," Computing in Economics and Finance 1999 723, Society for Computational Economics.
  10. Robert G. King & James H. Stock & Mark W. Watson, 1995. "Temporal instability of the unemployment-inflation relationship," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 2-12.
  11. Cross, Rod, 1993. "On the Foundations of Hysteresis in Economic Systems," Economics and Philosophy, Cambridge University Press, vol. 9(01), pages 53-74, April.
  12. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  13. Alan Manning, 1992. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," CEP Discussion Papers dp0062, Centre for Economic Performance, LSE.
  14. C Bean, 1992. "European Unemployment: A Survey," CEP Discussion Papers dp0071, Centre for Economic Performance, LSE.
  15. Solow, Robert M, 1986. "Unemployment: Getting the Questions Right," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S23-34, Supplemen.
  16. Cross, Rod, 1994. "The Macroeconomic Consequences of Discontinuous Adjustment: Selective Memory of Non-dominated Extrema," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(2), pages 212-21, May.
  17. Alogoskoufis, George S & Smith, Ron, 1991. "The Phillips Curve, the Persistence of Inflation, and the Lucas Critique: Evidence from Exchange-Rate Regimes," American Economic Review, American Economic Association, vol. 81(5), pages 1254-75, December.
  18. Laura Piscitelli & Michael Grinfeld & Harbir Lamba & Rod Cross, 1999. "On entry and exit in response to aggregate shocks," Applied Economics Letters, Taylor & Francis Journals, vol. 6(9), pages 569-572.
  19. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
  20. Cross,Rod Preface by-Name:Blanchard,Olivier (ed.), 1995. "The Natural Rate of Unemployment," Cambridge Books, Cambridge University Press, number 9780521483308.
  21. Blinder, Alan S, 1987. "Keynes, Lucas, and Scientific Progress," American Economic Review, American Economic Association, vol. 77(2), pages 130-36, May.
  22. Olivier Jean Blanchard, 1988. "Unemployment: Getting the Questions Right--and Some of the Answers," Working papers 502, Massachusetts Institute of Technology (MIT), Department of Economics.
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Citations

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Cited by:
  1. Rod Cross, 2014. "Unemployment: natural rate epicycles or hysteresis?," Working Papers 1402, University of Strathclyde Business School, Department of Economics.
  2. Angel Asensio & Dany Lang & Sbastien Charles, 2012. "Post Keynesian modeling: where are we, and where are we going to?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 34(3), pages 393-412, April.
  3. Rod Cross & Douglas Strachan, 2001. "Three Pillars of Conventional Wisdom," Review of Political Economy, Taylor & Francis Journals, vol. 13(2), pages 181-200.
  4. Marika Karanassou & Hector Sala, 2008. "The Rise and Fall of Spanish Unemployment: A Chain Reaction Theory Perspective," Working Papers 633, Queen Mary, University of London, School of Economics and Finance.

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