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Unemployment Hysteresis in Australian States and Territories: Evidence from Panel Data Unit Root Tests

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  • Russell Smyth

Abstract

This article tests for hysteresis by applying panel data unit root tests to quarterly unemployment rates for Australian states and territories between 1982:2 and 2002:1. Panel tests proposed by Levin and Lin (1992) using ordinary least squares and O'Connell (1998) using feasible generalised least squares (which assume that under the alternative hypothesis of stationarity, all labour markets revert to the natural rate at the same speed) provide evidence in support of the natural rate hypothesis. However, the panel test proposed by Im, Pesaran and Shin (1997), which does not assume that all cross-sectional units converge towards the equilibrium value at the same speed under the alternative and is therefore less restrictive than the other two panel tests, finds evidence of hysteresis. Given the advantages of the Im et al. (1997) test over the other two panel tests the results can be interpreted as being consistent with the existence of hysteresis in unemployment Copyright 2003 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.

Suggested Citation

  • Russell Smyth, 2003. "Unemployment Hysteresis in Australian States and Territories: Evidence from Panel Data Unit Root Tests," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(2), pages 181-192.
  • Handle: RePEc:bla:ausecr:v:36:y:2003:i:2:p:181-192
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    References listed on IDEAS

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    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    2. Dixon, Robert & Shepherd, David, 2001. "Trends and Cycles in Australian State and Territory Unemployment Rates," The Economic Record, The Economic Society of Australia, vol. 77(238), pages 252-269, September.
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    Cited by:

    1. Kumar Narayan, Paresh & Smyth, Russell, 2007. "Are shocks to energy consumption permanent or temporary? Evidence from 182 countries," Energy Policy, Elsevier, vol. 35(1), pages 333-341, January.
    2. Christian Dreger & Hans-Eggert Reimers, 2006. "Hysteresis and Persistence in the Course of Unemployment: The EU and US Experience," Discussion Papers of DIW Berlin 572, DIW Berlin, German Institute for Economic Research.
    3. Cheng, Shu-Ching & Wu, Tsung-pao & Lee, Kuei-Chiu & Chang, Tsangyao, 2014. "Flexible Fourier unit root test of unemployment for PIIGS countries," Economic Modelling, Elsevier, vol. 36(C), pages 142-148.
    4. Paresh Kumar Narayan & Ingrid Nielsen & Russell Smyth, 2010. "Is There a Natural Rate of Crime?," American Journal of Economics and Sociology, Wiley Blackwell, vol. 69(2), pages 759-782, April.
    5. Nsenga, Dieu & Nach, Mirada & Khobai, Hlalefang & Moyo, Clement & Phiri, Andrew, 2018. "Is it the natural rate or hysteresis hypothesis for unemployment rates in Newly Industrialized Economies?," MPRA Paper 86274, University Library of Munich, Germany.
    6. Dieu Nsenga & Mirada Nach & Hlalefang Khobai & Clement Moyo & Andrew Phiri, 2018. "Is it the natural rate or hysteresis hypothesis for unemployment in Newly Industrialized Economies?," Working Papers 1817, Department of Economics, Nelson Mandela University, revised Apr 2018.
    7. George Shih-Ku Chen, 2009. "Determinants Of Taiwanese Investment In China: An Agglomeration Economies-Based Perspective," Monash Economics Working Papers 01-09, Monash University, Department of Economics.
    8. Giray GOZGOR, 2013. "Unemployment Persistence and Inflation Convergence: Evidence from Regions of Turkey," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 13(1), pages 55-64.
    9. repec:wsi:serxxx:v:62:y:2017:i:05:n:s0217590815500782 is not listed on IDEAS
    10. Chen, George Shih-Ku, 2009. "Determinants of Taiwanese investment in China: An agglomeration economies-based perspective," MPRA Paper 13894, University Library of Munich, Germany.
    11. Fumitaka Furuoka, 2015. "Unemployment Hysteresis in the “Nordic Kitten”: Evidence from Five Estonian Regions," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(5), pages 631-642, December.
    12. Magnus Gustavsson & Pär Österholm, 2007. "Does Unemployment Hysteresis Equal Employment Hysteresis?," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 159-173, June.
    13. Tsangyao Chang & Kuei-Chiu Lee & Chien-Chung Nieh & Ching-Chun Wei, 2005. "An empirical note on testing hysteresis in unemployment for ten European countries: panel SURADF approach," Applied Economics Letters, Taylor & Francis Journals, vol. 12(14), pages 881-886.
    14. Lee, Chien-Chiang & Chang, Chun-Ping, 2008. "Unemployment hysteresis in OECD countries: Centurial time series evidence with structural breaks," Economic Modelling, Elsevier, vol. 25(2), pages 312-325, March.
    15. Vuyo Pikoko & Andrew Phiri, 2018. "Is there hysteresis in South African unemployment? Evidence form the post-recessionary period," Working Papers 1803, Department of Economics, Nelson Mandela University, revised Jan 2018.
    16. Paresh Kumar Narayan & Russell Smyth, 2005. "Are OECD stock prices characterized by a random walk? Evidence from sequential trend break and panel data models," Applied Financial Economics, Taylor & Francis Journals, vol. 15(8), pages 547-556.
    17. Chang, Tsangyao, 2011. "Hysteresis in unemployment for 17 OECD countries: Stationary test with a Fourier function," Economic Modelling, Elsevier, vol. 28(5), pages 2208-2214, September.
    18. Robert Dixon, 2007. "Common Cycles in Labour Market Separation Rates for Australian States," Department of Economics - Working Papers Series 991, The University of Melbourne.
    19. DO ANGO, Simplicio & AMBA OYON, Claude Marius, 2016. "A PANIC Attack on Inflation and Unemployment in Africa: Analysis of Persistence and Convergence," MPRA Paper 79685, University Library of Munich, Germany.
    20. Magnus Gustavsson & Par Osterholm, 2006. "Hysteresis and non-linearities in unemployment rates," Applied Economics Letters, Taylor & Francis Journals, vol. 13(9), pages 545-548.
    21. Fumitaka FURUOKA, 2014. "Does Hysteresis Exist in Unemployment? New Findings from Fourteen Regions of the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(1), pages 59-78, February.
    22. Chang, Tsangyao & Lee, Chia-Hao, 2011. "Hysteresis in Unemployment for G-7 Countries: Threshold Unit Root Test," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 5-14, December.
    23. Furuoka, Fumitaka, 2014. "Unemployment hysteresis in Central Asia," MPRA Paper 60323, University Library of Munich, Germany.
    24. repec:spr:empeco:v:53:y:2017:i:3:d:10.1007_s00181-016-1164-7 is not listed on IDEAS

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