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Asymmetric behavior of unemployment rates: Evidence from the quantile covariate unit root test

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Listed author(s):
  • Lee, Cheng-Feng
  • Hu, Te-Chung
  • Li, Ping-Cheng
  • Tsong, Ching-Chuan
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    Abstract

    Mixed results for unemployment dynamics are reported in many studies using linear or non-linear unit root tests. A possible explanation is that the literature focuses on the average behavior of unemployment and assumes that the speed of adjustment towards its long-run equilibrium is constant, regardless of the magnitudes and signs of shocks. This paper seeks to re-examine the dynamics of the unemployment rates in terms of shocks for 12 OECD countries. A newly developed quantile unit root test by Galvao (2009) is applied to show potential asymmetric responses of unemployment to shocks over various quantiles, depending on the size and sign of the shocks that hit the unemployment rate. Our results suggest that generally, the unemployment rates are not only stationary but also exhibit obvious asymmetric behavior, in the sense that in the lower quantiles, negative shocks with large absolute value tend to induce faster speed of adjustment towards the long-run equilibrium, while in the upper quantiles, large positive shocks do not, and hysteresis exists. These findings can explain why unemployment rates display the behavior of fast rises and slow falls.

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    File URL: http://www.sciencedirect.com/science/article/pii/S092214251300042X
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    Article provided by Elsevier in its journal Japan and the World Economy.

    Volume (Year): 28 (2013)
    Issue (Month): C ()
    Pages: 72-84

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    Handle: RePEc:eee:japwor:v:28:y:2013:i:c:p:72-84
    DOI: 10.1016/j.japwor.2013.08.002
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505557

    Keywords: Unemployment rate; Hysteresis; Quantile regression; Covariate; Unit root test; Asymmetry;

    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; Diffusion Processes
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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    Cited by:

    1. Jiang, Yushi & Chang, Tsangyao, 2016. "Bring Quantile Unit Root Test back in Testing Hysteresis in Unemployment for the United States," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 5-13, March.
    2. Saafi Sami & Farhat Abdeljelil & Haj Mohamed Meriem Bel, 2015. "Testing the relationships between shadow economy and unemployment: empirical evidence from linear and nonlinear tests," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(5), pages 585-608, December.
    3. Valera, Harold Glenn A. & Holmes, Mark J. & Hassan, Gazi M., 2017. "How credible is inflation targeting in Asia? A quantile unit root perspective," Economic Modelling, Elsevier, vol. 60(C), pages 194-210.

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