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Unemployment Hysteresis In Piigs Countries: A New Test With Both Sharp And Smooth Breaks

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  • JING-PING LI

    (Department of Finance and Banking, Shanxi University of Finance & Economics, Shanxi, China)

  • OMID RANJBAR

    (Department of Economics, Allameh Tabataba’i University, Trade Promotion Organization (TPO), Tehran 15134, Iran)

  • TSANGYAO CHANG

    (Department of Finance, Feng Chia University Taichung, Taiwan)

Abstract

In this empirical study, we apply the Panel stationary test with both sharp and smooth breaks to re-examine the hysteresis hypothesis of unemployment for five high-debt countries, Portugal, Ireland, Italy, Greece and Spain (PIIGS) from 1960 to 2011. We find that our proposed model has greater power than a linear method if the true data-generating process of unemployment is a stationary, non-linear process of unknown form with structural changes. Hysteresis in unemployment is confirmed for all PIIGS countries when traditional unit root tests are employed; however, hysteresis in unemployment is confirmed only for Greece when our proposed Panel stationary test with both sharp and smooth breaks is utilized.

Suggested Citation

  • Jing-Ping Li & Omid Ranjbar & Tsangyao Chang, 2017. "Unemployment Hysteresis In Piigs Countries: A New Test With Both Sharp And Smooth Breaks," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(05), pages 1165-1177, December.
    • Handle: RePEc:wsi:serxxx:v:62:y:2017:i:05:n:s0217590815500782
    DOI: 10.1142/S0217590815500782
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    2. OlaOluwa S. Yaya & Ahamuefula E. Ogbonna & Robert Mudida, 2019. "Hysteresis of unemployment rates in Africa: new findings from Fourier ADF test," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(6), pages 2781-2795, November.
    3. Nsenga, Dieu & Nach, Mirada & Khobai, Hlalefang & Moyo, Clement & Phiri, Andrew, 2018. "Is it the natural rate or hysteresis hypothesis for unemployment rates in Newly Industrialized Economies?," MPRA Paper 86274, University Library of Munich, Germany.

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