The asymmetry and fractional integration of the unemployment rate in Albania

This paper studies the unemployment rate in Albania for asymmetry and long run memory. Research suggests that nonlinearities are inherent characteristics of economic time series. Failing to account for these aspects leads to lower explanatory and predictive power of economic models. The regime switching models augmented by inclusion of 'current depth of the recession' (CDR) variable is considered to account for asymmetry and therefore nonlinearity. The fractionally integrated time series model is employed to account for long-memory. The empirical results suggest the presence of asymmetry, while finding no evidence of it being persistent. Negative shocks have bigger impact on the unemployment rate in Albania than positive shocks. An important lesson for policy design is that while economic policy can be more prudent during expansions, greater maneuvering room may need to be built in economic policy to be able to respond to the bigger impact of negative shocks.