Unemployment and input prices: A fractional cointegration approach
AbstractThis paper examines the relationship between unemployment, real oil price and real interest rates in Canada. Instead of following the classical approach based on I(0) stationarity or I(1) cointegrating relationships, we use fractional integration/cointegration techniques which allow for the possibility that unemployment is highly persistent. In line with other studies, we find that all three variables are I(1). But we only find cointegration in the presence of autocorrelated disturbances, which means that the relationship between these variables also has a dynamic component. Furthermore, there is evidence of fractional (as opposed to classical cointegration, which implies long memory and slow reversion to equilibrium. This suggests that an equilibrium model with highly persistent shocks might be adequate to account for the observed behaviour of unemployment. --
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Bibliographic InfoPaper 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 2001,56.
Date of creation: 2000
Date of revision:
Unemployment; Input Prices; Long Memory; Fractional Integration; Fractional Cointegration;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
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