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Hysteresis and non-linearities in unemployment rates

  • Magnus Gustavsson
  • Par Osterholm

This study tests whether there is evidence of mean reversion in unemployment rates using the recently developed unit root test of Kapetanios et al. (2003). In this framework, the null hypothesis of a unit root process is tested against the alternative of a globally stationary exponential smooth transition autoregressive process. Applying the test to monthly data for Australia, Canada, Finland, Sweden and the USA, it is concluded that unemployment hysteresis finds less support when non-linearities are allowed for compared to the benchmark of using a standard Augmented Dickey-Fuller test.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 13 (2006)
Issue (Month): 9 ()
Pages: 545-548

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Handle: RePEc:taf:apeclt:v:13:y:2006:i:9:p:545-548
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  15. Jacobson, Tor & Vredin, Anders & Warne, Anders, 1997. "Common trends and hysteresis in Scandinavian unemployment," European Economic Review, Elsevier, vol. 41(9), pages 1781-1816, December.
  16. Russell Smyth, 2003. "Unemployment Hysteresis in Australian States and Territories: Evidence from Panel Data Unit Root Tests," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(2), pages 181-192.
  17. Andrew Clark, 2001. "Unemployment As A Social Norm: Psychological Evidence from Panel Data," DELTA Working Papers 2001-17, DELTA (Ecole normale supérieure).
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