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Persistence and non-linearity in US unemployment: A regime-switching approach

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  • Cevik, Emrah Ismail
  • Dibooglu, Sel

Abstract

This article examines persistence and nonlinearity in the US unemployment rate in the post-war period by using a regime-switching unit root test. The empirical results indicate that a regime-switching unit root test outperforms conventional unit root tests and describes unemployment behavior better over the business cycle in the sample. While shocks to US unemployment dissipate in expansions, shocks to the unemployment rate seem to be persistent in recessions, supporting the hysteresis hypothesis. This is consistent with the usual explanation of hysteresis that workers may lose valuable job skills in protracted recessions.

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  • Cevik, Emrah Ismail & Dibooglu, Sel, 2013. "Persistence and non-linearity in US unemployment: A regime-switching approach," Economic Systems, Elsevier, vol. 37(1), pages 61-68.
    • Handle: RePEc:eee:ecosys:v:37:y:2013:i:1:p:61-68
    DOI: 10.1016/j.ecosys.2012.06.002
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    3. Omay, Tolga & Shahbaz, Muhammad & Stewart, Chris, 2021. "Is There Really Hysteresis in OECD Countries’ Unemployment Rates? New Evidence Using a Fourier Panel Unit Root Test," MPRA Paper 107691, University Library of Munich, Germany, revised 10 May 2021.
    4. Tiwari, Aviral Kumar & Menegaki, Angeliki N., 2019. "A time varying approach on the price elasticity of electricity in India during 1975–2013," Energy, Elsevier, vol. 183(C), pages 385-397.
    5. Cheng, Ka Ming, 2022. "Doubts on natural rate of unemployment: Evidence and policy implications," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 230-239.
    6. Niels Framroze Møller, 2019. "Decoding unemployment persistence: an econometric framework for identifying and comparing the sources of persistence with an application to UK macrodata," Empirical Economics, Springer, vol. 56(5), pages 1489-1514, May.
    7. Marianna Oliskevych & Iryna Lukianenko, 2020. "European unemployment nonlinear dynamics over the business cycles: Markov switching approach," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 22(4), pages 375-401.
    8. Ifedolapo Olabisi Olanipekun & Seyi Saint Akadiri & Osundina Olawumi & Festus Victor Bekun, 2017. "Does Labor Market Hysteresis Hold in Low Income Countries?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 19-23.

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    More about this item

    Keywords

    Unemployment; Hysteresis; Markov switching model; Persistence;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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