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Persistence and stochastic convergence of euro area unemployment rates

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  • Krištić, Irena Raguž
  • Dumančić, Lucija Rogić
  • Arčabić, Vladimir

Abstract

This paper analyzes unemployment rates in the euro area (EA) countries to test for EA-related benefits and economic integration of the EA in the form of lower unemployment rates and unemployment rates convergence. We employ recently developed unit root tests with structural breaks and non-normal errors to analyze the persistence, test the stochastic convergence and locate structural break(s) in EA unemployment rates from 1995q1 to 2016q2. Our results imply a certain degree of unemployment hysteresis in the EA. Even though the results support the stochastic convergence of the majority of EA countries, we find that EA membership is not a sufficient condition for stochastic convergence. Nevertheless, EA-related breaks are followed by the periods of convergence to the EA11 average. Crisis-related breaks are followed by the periods of divergence. Although providing initial benefits, EA is not functioning as an optimal currency area.

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  • Krištić, Irena Raguž & Dumančić, Lucija Rogić & Arčabić, Vladimir, 2019. "Persistence and stochastic convergence of euro area unemployment rates," Economic Modelling, Elsevier, vol. 76(C), pages 192-198.
    • Handle: RePEc:eee:ecmode:v:76:y:2019:i:c:p:192-198
    DOI: 10.1016/j.econmod.2018.07.032
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    Cited by:

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    2. Alka Obadić & Vladimir Arčabić & Lucija Rogić Dumančić, 2021. "Labor market institutions convergence in the European Union," EFZG Working Papers Series 2102, Faculty of Economics and Business, University of Zagreb.
    3. Ahmed Qahtan, Anwar Saeed & Xu, Helian & Abdo, AL-Barakani, 2021. "Stochastic convergence of disaggregated energy consumption per capita and its catch-up rate: An independent analysis of MENA net oil-exporting and importing countries," Energy Policy, Elsevier, vol. 150(C).
    4. Aysegul Corakci & Tolga Omay & Mübariz Hasanov, 2022. "Hysteresis and stochastic convergence in Eurozone unemployment rates: evidence from panel unit roots with smooth breaks and asymmetric dynamics," Oeconomia Copernicana, Institute of Economic Research, vol. 13(1), pages 11-55, March.
    5. Obadić, Alka & Arčabić, Vladimir & Rogić Dumančić, Lucija, 2023. "Club convergence of labor market institutions in the European Union," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 876-896.
    6. William Miles, 2021. "Convergence in the Eurozone: Progress Towards the Goal?," Economic Papers, The Economic Society of Australia, vol. 40(2), pages 116-133, June.
    7. Feng Wang & Wenna Fan & Xiangyan Lin & Juan Liu & Xin Ye, 2020. "Does Population Mobility Contribute to Urbanization Convergence? Empirical Evidence from Three Major Urban Agglomerations in China," Sustainability, MDPI, vol. 12(2), pages 1-20, January.

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    More about this item

    Keywords

    Unemployment; Euro area; Hysteresis; Stochastic convergence; Unit root; Structural breaks;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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