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Fractional integration and the dynamics of UK unemployment

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  • Gil-Alaña, Luis A.
  • Henry, Brian
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    Abstract

    This article is concerned with the dynamic behaviour of UK unemployment. However, instead of using traditional approaches based on I(0) stationary or I(1) (integrated and/or cointegrated) models, we use the fractional integration framework. In doing so, we allow for a more careful study of the low frequency dynamics underlying the series. The conclusions suggest that the UK unemployment may be explained in terms of lagged values of the real oil prices and the real interest rate, with the order of integration of unemployment ranging between 0.50 and 1. Thus, unemployment shows the characteristics of long memory but is mean reverting. --

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    File URL: http://econstor.eu/bitstream/10419/62227/1/722941188.pdf
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    Bibliographic Info

    Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2000,14.

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    Date of creation: 2000
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    Handle: RePEc:zbw:sfb373:200014

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    Keywords: long memory; unemployment; fractional integration;

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    1. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Henry, Brian & Karanassou, Marika & Snower, Dennis J, 2000. "Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 178-203, January.
    3. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    4. Layard, R. & Bean, C., 1988. "Why Does Unemployment Persist?," Papers 321, London School of Economics - Centre for Labour Economics.
    5. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
    6. Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-16, May.
    7. Olivier Blanchard, 1998. "Revisiting European Unemployment: Unemployment, Capital Accumulation, and Factor Prices," NBER Working Papers 6566, National Bureau of Economic Research, Inc.
    8. Carruth,a. & Hooker, N. & Oswald,A., 1997. "Unemployment Equilibria and Input Prices: Theory and Evidence from the United States," Papers 22, Centre for Economic Performance & Institute of Economics.
    9. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
    10. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
    11. Sowell, Fallaw, 1992. "Maximum likelihood estimation of stationary univariate fractionally integrated time series models," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 165-188.
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