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Hysteresis in Unemployment Rates? A Comparison between Germany and the US

  • Uwe Hassler

    ()

    (Universitaet Frankfurt)

  • Jürgen Wolters

    ()

    (Freie Universitaet Berlin)

In this paper we compare the unemployment dynamics of the US and Germany with monthly data up to 2008. With data from 1971 on the evidence is mixed when applying descriptive methods or formal unit root tests. When allowing for fractional integration, however, we find similar results to the literature in that shocks to US data seem to be transitory while having permanent effects on German unemployment. This difference in hysteresis, however, depends on the sample. Using recursive and rolling techniques we observe that shocks in US subsamples until the mid-nineties are clearly more transitory than in more recent subsamples.We conclude that hysteresis has turned into a dominating feature also on US labour market more recently.

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Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 229 (2009)
Issue (Month): 2-3 (June)
Pages: 119-129

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Handle: RePEc:jns:jbstat:v:229:y:2009:i:2-3:p:119-129
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  1. Jürgen Wolters & Uwe Hassler, 2006. "Unit root testing," AStA Advances in Statistical Analysis, Springer, vol. 90(1), pages 43-58, March.
  2. Franz, Wolfgang, 1990. "Hysteresis in Economic Relationships: An Overview," Empirical Economics, Springer, vol. 15(2), pages 109-25.
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  4. Franz, Wolfgang, 1990. "Hysteresis in economic relationships: An overview," Discussion Papers, Series II 104, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  5. Luis A. Gil-Alana, . "Fractional integration and structural breaks at unknown periods of time," Faculty Working Papers 16/06, School of Economics and Business Administration, University of Navarra.
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  7. Peter M. Robinson & M. Henry, 1999. "Long and short memory conditional heteroskedasticity in estimating the memory parameter of levels," LSE Research Online Documents on Economics 304, London School of Economics and Political Science, LSE Library.
  8. Lee, D. & Schmidt, P., 1993. "On the Power of the KPSS Test of Stationarity Against Fractionally-Integrated Alternatives," Papers 9111, Michigan State - Econometrics and Economic Theory.
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  10. Nuno Crato & Philip Rothman, . "Measuring Hysteresis in Unemployment Rates with Long Memory Models," Working Papers 9619, East Carolina University, Department of Economics.
  11. David H. Papell & Christian J. Murray & Hala Ghiblawi, 2000. "The Structure of Unemployment," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 309-315, May.
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  13. Diebold, Francis X. & Rudebusch, Glenn D., 1991. "On the power of Dickey-Fuller tests against fractional alternatives," Economics Letters, Elsevier, vol. 35(2), pages 155-160, February.
  14. Roed, Knut, 1997. " Hysteresis in Unemployment," Journal of Economic Surveys, Wiley Blackwell, vol. 11(4), pages 389-418, December.
  15. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Working Papers 1950, National Bureau of Economic Research, Inc.
  16. Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, vol. 73(1), pages 5-59, July.
  17. Philip Arestis & Iris Biefang-Frisancho Mariscal, 2000. "OECD unemployment: structural breaks and stationarity," Applied Economics, Taylor & Francis Journals, vol. 32(4), pages 399-403.
  18. Luis Gil-Alana, 2001. "The persistence of unemployment in the USA and Europe in terms of fractionally ARIMA models," Applied Economics, Taylor & Francis Journals, vol. 33(10), pages 1263-1269.
  19. Katarina Juselius, 1999. "Models and relations in economics and econometrics," Journal of Economic Methodology, Taylor & Francis Journals, vol. 6(2), pages 259-290.
  20. Hassler, Uwe & Wolters, Jurgen, 1994. "On the power of unit root tests against fractional alternatives," Economics Letters, Elsevier, vol. 45(1), pages 1-5, May.
  21. Arestis, Philip & Biefang-Frisancho Mariscal, Iris, 1999. "Unit roots and structural breaks in OECD unemployment," Economics Letters, Elsevier, vol. 65(2), pages 149-156, November.
  22. Demetrescu, Matei & Kuzin, Vladimir & Hassler, Uwe, 2008. "Long Memory Testing In The Time Domain," Econometric Theory, Cambridge University Press, vol. 24(01), pages 176-215, February.
  23. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 631-53, October.
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