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Persistence in the Unemployment and Inflation Relationship. Evidence from 38 OECD Countries

Author

Listed:
  • Sakiru Adebola Solarin

    (Multimedia University)

  • Carmen Lafuente

    (Universidad Francisco de Vitoria)

  • Luis A. Gil-Alana

    (Universidad Francisco de Vitoria
    University of Navarra)

  • María Jesús González-Blanch

    (Universidad Francisco de Vitoria)

Abstract

This paper focuses on the analysis of persistence in the unemployment and inflation rates in a group of 38 OECD countries as well as on the relationship between the two variables. For this purpose, fractional integration is used. The results indicate that the two individual variables are highly persistent, especially the unemployment rate, and evidence of mean reversion is only found in the cases of Colombia and Costa Rica for unemployment and in Norway for inflation. Conducting the analysis on the difference between the two variables, the order of integration is significantly smaller in a number of cases, and reversion to the mean takes place in the cases of Austria, Switzerland, Costa Rica, Israel, and Turkey. Policy recommendations derived from the results are presented in the concluding section of the article.

Suggested Citation

  • Sakiru Adebola Solarin & Carmen Lafuente & Luis A. Gil-Alana & María Jesús González-Blanch, 2025. "Persistence in the Unemployment and Inflation Relationship. Evidence from 38 OECD Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(1), pages 1236-1257, March.
    • Handle: RePEc:spr:jknowl:v:16:y:2025:i:1:d:10.1007_s13132-024-02034-4
    DOI: 10.1007/s13132-024-02034-4
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    More about this item

    Keywords

    Unemployment; Inflation; Persistence; Fractional integration;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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