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Unemployment Hysteresis in the “Nordic Kitten”: Evidence from Five Estonian Regions

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  • Fumitaka Furuoka

    () (Asia-Europe Institute, University of Malaya, Kuala Lumpur, Malaysia)

Abstract

Unemployment hysteresis is a much discussed and researched topic in macroeconomics. The present paper examined unemployment hysteresis in five Estonian regions. It used two panel data methods, namely, the ImPesaran-Shin (IPS) test and the Fourier Im-Pesaran-Shin (FIPS) test. The originality and value of this paper is that this is the first study that uses the panel unit root tests to examine unemployment dynamics in the Estonian regions. The findings revealed that the unemployment rates in the Estonian regions could be best described as a stationary process. This result is in line with the natural rate hypothesis. A research implication is that this study has illustrated that nonlinear tests could be an appropriate approach to examine unemployment hysteresis because other methods may fail to reject the null hypothesis. A practical implication of this study is that it sheds light on the nature of unemployment dynamics in Estonia at the regional level. As the findings revealed, the unemployment rates in the Estonian regions had the meanreversion property. Therefore, the higher-than-normal unemployment rates are likely to return to the natural level even in the absence of intervention policies initiated by the government or policy makers.

Suggested Citation

  • Fumitaka Furuoka, 2015. "Unemployment Hysteresis in the “Nordic Kitten”: Evidence from Five Estonian Regions," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(5), pages 631-642, December.
  • Handle: RePEc:voj:journl:v:62:y:2015:i:5:p:631-642
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    References listed on IDEAS

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    Cited by:

    1. Yaya, OlaOluwa S & Ogbonna, Ahamuefula & Mudida, Robert, 2019. "Hysteresis of Unemployment Rates in Africa: New Findings from Fourier ADF test," MPRA Paper 93939, University Library of Munich, Germany.
    2. Vuyo Pikoko & Andrew Phiri, 2018. "Is there hysteresis in South African unemployment? Evidence form the post-recessionary period," Working Papers 1803, Department of Economics, Nelson Mandela University, revised Jan 2018.

    More about this item

    Keywords

    Unemployment hysteresis; Estonia; Panel unit root test; Regional economies;

    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

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